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How Can We Cut Through the Chop?

Here's why I would love to see the market get whacked.

The Market

It was another day of chop. How many more days of chop can we have before the market finally gets moving and decides to be active again? I don’t know, but I have some ideas.

First of all, bonds have now had their third straight down day. The banks have responded accordingly. But the other "reopening" stocks seemed to have missed the memo. It’s rare we get a day with bonds down and breadth so poor. Also, I would expect bonds to have some sort of small rally before the week is out. I am not bullish bonds, but they are going to be short-term oversold by Wednesday.

Then there is the Volatility Index. The Daily Sentiment Index for the VIX stayed at 11 today. Nasdaq nudged up to 89. That tells me we should approach the market with some caution this week, because when these two are at such extremes, we are more likely to get a bout of volatility. Perhaps there will be something to wake us up from this chop fest. The McClellan Summation Index is flat and hasn’t been able to lift itself in this rally, even as small caps have rallied. The transports fell again today, but they still haven’t broken. So here’s another chop fest we’ve seen over the last month.

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About the only indicator I have of interest is the 30-day moving average of Nasdaq’s advance/decline line. Typically each Monday I show you the NYSE’s 30-day moving average of the a/d line. But as you might recall in early July the small caps began their descent. Lately this indicator has been milling around in the oversold area. Yet it is, like the Summation Index, unable to lift.

However, in the coming weeks, this will drop a decent string of red numbers. That means this is the window of opportunity for those stocks that got crushed in July to show us if they can rally.

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The bottom line is I would love to see a market whack just so we can get the VIX popping, Nasdaq down (the S&P, too) and we can see if stocks really want to hold into a decline. But somehow we don’t get that, we get this back and forth chop that keeps the indexes levitating without really making any progress.

New Ideas

I should begin with a follow-up to the person who inquired about the VanEck Vectors Gold Miners exchange-traded fund (GDX) - Get Free Report yesterday. It has fallen into that $32-$33 zone and the DSI is at 8. If you are interested in playing for a bounce, this is the time. There is not much to like about the chart here, but it is oversold with poor sentiment.

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Today’s Indicator

The 30-day moving average of the advance/decline line is discussed above with the chart.

Q&A/Reader’s Feedback

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Well that is certainly a breakout for Datadog (DDOG:Nasdaq). Since I am not terribly good at chasing, I will simply note the measured target is around $155. Should it pullback toward $115 I would think it is buyable.

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KWEB, an exchange-traded fund for Chinese Internet stocks, has a sort of island bottom from a few weeks ago, so as long as that stays intact I would think this can make its way to fill that gap at $55, possibly more, but I’d start with $55.

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Energy Select Sector SPDR (XLE) - Get Free Report has an interesting pattern. Let me explain why. Oil itself came down today to retest the lows from mid July. For now it hasn’t broken. But notice that for now XLE has not come close to that low of $46. This is what I meant when I said I am looking for stocks that refuse to go lower when they ought to. So I do have my eyes on XLE, because holding over $48 would be a very good sign and crossing $50 would solidify it. We want to see a formerly loved group act sold out.

But the pattern itself is awful, because it does look like a head-and-shoulders top. That’s why I am so focused on the chart’s potential to improve rather than deteriorate.

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