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Is The Rally Over? Let Me Repeat…

Using history as a guide and the indicators, we can get a good idea of the answer.

The Market

As you can imagine, my inbox is filled with people asking if the rally is over yet. Let me reiterate my view.

When we have looked at prior rallies, we did not see any that were retested prior to five or six weeks after the initial low. This is week four. Many tested months later. But forget that for a minute.

The indicators need to change. They need to get overbought. Sentiment needs to shift. And the indicators need to roll over. It’s the same process as any other time I am looking at the end of a rally. So, sure, we may easily see a few down days, but the indicators are not there yet.

Short-term overbought? A little bit. Yes, I know someone will surely show me the McClellan Oscillator, which I do not use. But you know what? I know the input for it, and you are simply looking at levels. The inputs say it could go a few more days.

My own short-term Oscillator is still not going to be overbought, until sometime between Friday and Monday. Yes, I am finally able to put a date on it. No, I don’t think the market is up every day between now and then, but that’s the time frame when the short-term should finally run out of momentum.

The intermediate-term is different. The earliest I see that getting overbought is late next week, and that’s the earliest. Let’s say that’s probably when it dips a toe into overbought. Keep in mind the intermediate-term only got oversold two weeks ago, having gotten overbought in mid-January. Just because the market has rallied, doesn’t mean it has gotten overbought, it works on its own schedule.

The McClellan Summation Index is heading up. It has a big cushion. It needs a net differential of negative 5,300 advancers minus decliners on the New York Stock Exchange to halt the current rise. That makes it overbought short term. But there is – as of now — no sign of it weakening and rolling over. The chart is shown below.

Let me note that breadth today was pretty poor on a relative basis. That means that between yesterday and today breadth was flat while the S&P added 55 points. But we need weak breadth for more than a day or two to get the indicators to rollover.

I am concerned that the breadth wasn’t good because that is how the indicators will eventually roll back over but so far, it hasn’t been weak enough to change the indicators.

And sentiment? It feels like it has shifted dramatically doesn’t it? Yet, I can’t point to any statistic that says it has. Anecdotally, it feels like everyone is bullish, yet the 10-day moving average of the put/call ratio is still heading down. It hasn’t even curled back up yet.

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Based on the last few days of trading, we are more apt to see much more choppy trading. For example, the small cap fund IWM (IWM) - Get Free Report filled that gap late last week and hasn’t been able to surpass it. The energy group is lagging again. So are the banks. So are the industrials. Or that the Fed might be buying the credit funds like JNK (JNK) - Get Free Report and HYG (HYG) - Get Free Report, but they haven’t gone anywhere since the gap up on Thursday. Or that the Transports haven’t gotten over last week’s high.

But, as always, I will wait for the indicators to guide me.

New Ideas

I was dead wrong about Shopify (SHOP) - Get Free Report since all it did was take a breather at the downtrend lien and then gapped up over it. It is now at resistance, but I suppose if it could pull back to the line, it would be buyable again.

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With all the fan favorites rocking, I’m a bit surprised Lululemon (LULU:Nadsaq) hasn’t rocked upward yet. If it can get through this resistance, I think it can get to $220 before running into serious resistance.

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Today’s Indicator

The McClellan Summation Index is discussed above.

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Q&A/Reader’s Feedback

Helene welcomes your questions about Top Stocks and her charting strategy and techniques. Please send an email directly to Helene with your questions. However, please remember that TheStreet.com Top Stocks is not intended to provide personalized investment advice. Email Helene here.

I don’t know if the DAX can get to $11,500, but if it can that’s where I’d be inclined to sell it.

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I see resistance on Mercado Libre (MELI:Nasdaq) in the $600 area, but I have a measured target at $625, so in the $600-$625 area is where I would sell it. The company is slated to report early next month.

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I was such a fan of CrowdStrike (CRWD:Nasdaq) a few months ago. I thought it was building a base and then it, along with everything else, plunged. Can this still be a base? Yes it can. At $65 to $70 looks like the first real hurdle for it.

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McDonald’s (MCD) - Get Free Report has a gap fill at $185 and resistance is there, as well. That‘s where I think it stalls out, between $185-$190. The company reports at the end of the month.

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