Skip to main content

Late to the Party

The rally arrived, but we still need another, and we’re also still likely to fall again – let’s look through recent years to see how one of the charts compares with now.

The Market

The rally arrived. A day late, but it arrived. And I wouldn’t be surprised if we saw the market down on Wednesday. But it wouldn’t change my view that we need a rally. Even if the next four to five trading days are choppy, it won’t change my view that we need a rally.

Something else is unlikely to change my view: that after the rally, we ought to come back down again. I often discuss the W pattern. This would be no different. One reason is that we need to see the intermediate-term indicators line up and get oversold and that takes time. Another reason is we need to see the number of stocks making new lows contract.

But there is something else I want to share with you. It’s about sentiment. Exactly one week ago, when the market was making new all-time highs, the Investors Intelligence bulls topped up at 57%. I thought, since they are mostly tallied through last Friday -- and therefore would have excluded Monday’s action -- that we’d see maybe 52%. But we saw a plunge to 48.1%. Nine point plunges in bulls don’t come along every day. In fact, since 2008, we have only had seven such instances.

Let’s go through them so you can see that I see the up-down pattern as more common than not. We’ll begin with 2008. There was a plunge of 9 points in bulls right before the Bear Stearns low (blue arrow) on the chart. But look at that chart: we’d been in a downtrend since the year began. This time we’re talking about a week.

In late May 2008 it happened again. We got a miniscule bounce, and that was that. Notice that that decline was about a week old. That’s the green arrow on the chart.

Image placeholder title

Let’s move to the year 2010. We had a 12 point move down in bulls at the blue arrow. And similar to now, the decline was just over a week old. Notice we bounced and came back down before we rallied well.

Then there was an almost 9 point move down after the Flash Crash in May of that year (green arrow). Here we were about a week off the highs, as well. We rallied and down we came again.

Image placeholder title

It took six years before we saw another plunge like that, week-over-week. This time it was the low. But similar to the Bear Stearns low, look how long we’d been going down for. It’s not the same dynamic.

Image placeholder title

Finally it occurred twice in the last 20 months. After the January 2018 plunge (blue arrow), which was somewhat similar to this time in that we plunged off of all time highs. We saw an 11 point decline in bulls week-over-week. We rallied for a day or two, came back down. But notice, we came back down for a real retest nearly two months later, in April.

It then happened after the December low. Now this one is a little funky, because the survey doesn’t publish Christmas week, and that was when the S&P 500 made its low. So, the fall of 9 points appears on Jan. 2, but at any other time of the year would likely have been the week prior, near the low.

In any event, the difference is the same: We had been plunging for months already, not just off the high.

Image placeholder title

This is just another reason I think the sequence of up, then down is what is in store for us.

Ideas

I still think Netflix (NFLX:Nasdaq) should enjoy a bounce.

Image placeholder title

As GLD approaches the $140-$142 target zone for this move, I will also report that the Daily Sentiment Index (DSI) for Gold is back at 95. Some profit taking might be in order in the near term. There is a longer-term target near $150, but I don’t think it’s going there in a straight line.

Image placeholder title

Today’s Indicator

The McClellan Summation is still heading down.

Image placeholder title

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 see no great reason to like the chart of International Paper (IP) - Get Free Report, except that it is nearing the lower line and therefore should bounce from there. But In general, it’s a stock in a downtrend. If it can rally to $42-$43 I’d sell it. If you are interested in a paper stock, then I’d keep an eye on Packaging Corp of America (PKG) - Get Free Report, since it has hung in there spectacularly. I’d use a tight stop under $97, but if it can ever get up and over that flat line around $103, it would be a breakout.

Image placeholder title
Image placeholder title

I have liked Apple (AAPL:Nasdaq) through much of this year, especially when it collapsed to $140 in January. I even liked it at $175 in June. But I am not a big fan of it right now. It’s in the middle of nowhere. And with Apple at that line around $180-$185, I might want to revisit it. I will keep my eye on it and otherwise say I’m very neutral on AAPL. If it filled that gap just over $200, I’d be inclined to take some money off the table.

Image placeholder title
Dow is the Most Vulnerable to Profit Taking

Dow is the Most Vulnerable to Profit Taking

Despite the newfound focus on the Dow Jones Industrial Average last week, it turns out we may be seeing the last gasp of outperformance here.

How Hungry Is This Market?

How Hungry Is This Market?

Here's what I'd like to see happen with this rally -- I'd like it to show some FAANGs. Here's why -- and a look at Microsoft's chart, news highs and more.

Sloppy With a Chance of Rallying

Sloppy With a Chance of Rallying

Here's why I see another rally before the weekend, even amid the messiness, and a bump for Amazon.

Sloppy With a Chance of Rallying

We Can Rally Just a Bit More

Energy stocks have a lot of complacency in them.