Skip to main content

Let’s Look Under the Hood

Take a look at the Panic/Euphoria Model, 10-day moving average of stocks making new lows, and the likelihood we’ll back to a short-term oversold condition later in the week

The Market

There is a lot to discuss in terms of the indicators, but I want to point out the few that should be highlighted.

The Citi Panic/Euphoria Model which got up to Euphoria a month ago, backed off but lifted up yet again. I believe this is a week old when I get the chart in Barron’s each week so it probably backed off somewhat this past week, yet it would not be enough to even consider that there is much bearishness around.

Image placeholder title

If you are staring at the chart of the S&P 500 and thinking this Panic/Euphoria Model doesn’t matter, allow me to point your eyes in the direction of the McClellan Summation Index, which tells us what the majority of stocks are doing (up or down) and note that it peaked and turned down in mid-January, right around when we first hit Euphoria. The Summation Index has not participated in the February rally at all, so I’d say the Panic/Euphoria Model is spot on.

Image placeholder title

Consider too that the 10-day moving average of stocks making new lows turned up in early January and despite a small dip in early February it remains quite high (and moving up) when you consider the S&P made a new high on Wednesday.

Image placeholder title

Then let me point out that the breadth of the market, using the cumulative advance/decline line, also had a negative divergence from mid-January.

Image placeholder title

Those are all intermediate-term indicators. You might recall the intermediate-term indicators reached an overbought reading in late January. Now let’s talk about the shorter-term indicators.

I think if we can get a few more down days this coming week we’ll be back to a short-term oversold condition later in the week. That’s based on my own Overbought/Oversold Oscillator. But we also have the “what if” for the McClellan Summation Index. It currently needs a net differential of positive 1,300 advancers minus decliners on the New York Stock Exchange to stop the current downward path. At positive 2,000 it steps a toe into oversold territory. So you can see some more downside would get us there.

A few weeks ago I complained about the lack of volume in the PowerShares QQQ Trust (QQQ:Nasdaq). I noted that even the declines had light volume. Friday saw the first such change as the QQQs had the highest volume since the early August whack. That is a step toward getting oversold.

Image placeholder title

In terms of sentiment, the 10-day moving average of the various put/call ratios are still relatively low, but they are rising. The key is that Friday’s reading for the put/call ratio was 115%. That is the highest reading since 121% back in late November. That is the first time we’ve seen any level of concern in the market in nearly three months. But I did not sense any panic. Not yet.

Again, I don’t have a strong feeling on a day-to-day basis, but I do know that more downside a few days this week will take us closer to a short-term oversold condition by the end of the week.

Let me conclude by noting that the dollar finally backed off on Friday, after that Daily Sentiment Indicator (DSI) reading of 93 (it is now 86). Gold saw its DSI rise to 96. A pullback this week should cool that off.

New Ideas

A few weeks ago I began harping away at Cummins (CMI) - Get Free Report and I want to revisit it. One reason is that it is my view that unless and until we see all these stocks that peaked months ago start to hold and participate the rally will continue to be narrow and narrow rallies are ultimately bearish.

CMI made its low (so far) on the last day of January; notice it was green on Friday. That downtrend line has stopped it in its tracks the last few weeks but that remains key. A move up and over it and it will be a stock no longer in a correction/downtrend. In other words it changes the pattern.

Image placeholder title

Let’s add another one to watch to this list. Steel Dynamics (STLD:Nasdaq). It peaked in December and then broke down in January. But it did not participate on the downside Thursday and Friday this past week. Oh, there is a long way to go before we could see any thing terribly bullish in the chart, but a rally to the green line followed by another dip and a move over the green line would make this look like the correction/decline was over.

The improvement has to start somewhere, because we can’t continue with just technology winning the day.

Image placeholder title

I would look for a stock like Adobe (ADBE:Nasdaq) to come down and tag that line. A move to that $360 area would also fill that small gap.

Image placeholder title

Today’s Indicator

The new lows are discussed above with the chart.

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.

We already know that I like Gilead (GILD:Nasdaq), but I was asked about iShares NASDAQ Biotechnology Index (IBB:Nasdaq). If it can get up and over $124, it would be good and would give a longer term measured target around $135.

Image placeholder title

Tradeweb Markets (TW:Nasdaq) had a nice breakout a couple of weeks ago. I am not very good at chasing stocks that are up already but the chart measures to the $60 area eventually.

Image placeholder title

I don’t know what to do with Victory Capital Holdings (VCTR:Nasdaq) right here because it has met its upside measured target. I suppose if it can go sideways for a while and stay over $22 I might like it again but right here I’m more inclined to be a profit taker or hold with a stop under $22.

Image placeholder title

USX-US Steel (X) - Get Free Report is interesting because it has been left for dead and is trying to cross that green downtrend line. I think it has a shot at bouncing toward that back line. I don’t think it can get through there but if these down and out cyclical names can get out of the doldrums then Letter X can make a try for the black line.

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.