After three strong days of value outperforming growth, it seems everyone is now on the bandwagon. You will see when we look at the chart of the small cap fund IWM (IWM) - Get Free Report relative to SPY (SPY) - Get Free Report below, and I can understand their enthusiasm, but I am struck by so much acceptance so quickly. It probably means we get a few days where the rotation changes.
Breadth was good again, especially relative to the decline in the S&P 500. Even Nasdaq, with its big slide still had positive readings for net breadth and net volume. This means — all together now – there has been no change in the indicators.
It will take more than an overbought condition to turn the indicators. But at the same time, I do think the Volatility Index continues to look to me as if it will rise in the first half of May, so that would mean we should expect more volatility. Should the indicators roll over, that would make a difference. I will keep you up. What I do want to do here is take a look at some uptrend lines, something we rarely do, but my guess is if the market pulls back in May, there will be many eyes on these lines, so let’s be prepared.
The S&P’s uptrend line currently comes in around 2775. That will rise as time goes on. So, for example, next week it will be just over 2800. My view on uptrend lines is that steep ones are made to be broken, the question is how much they break by. So, for example, if the S&P broke that uptrend line and then broke under 2700 that would change the pattern a bit because that 2725 area is what held last week, so if it breaks you then have a lower low, even if it is a short term one. Remember this is all a process.
To me, the uptrend line in the SOX (SOX:Nasdaq) is more important and easier to see what to watch for. The line is currently around 1,650. But look at last week’s low; it’s at 1,600. So are the lows of early April, where that second week saw four days with lows right near 1,600.
I have said for a few weeks now that I think the SOX has too much resistance overhead for me to like any of those stocks right now. I don’t think they have done anything wrong to be bearish, but the resistance overhead has me sidelined in the group. But if that uptrend line breaks and then 1,600 breaks that changes quite a bit in the chart, because it essentially breaks support. That’s what I would watch in the month of May.
We’ll do some follow ups today. The oil and gas fund XOP (XOP) - Get Free Report is very close to filling that gap at $50 that I have been looking for. I’m inclined to take something off the table, especially if it tags $50 to close that gap.
KB Homes (KBH) - Get Free Report has had a terrific move in the last week and is now nearing my first target of $25-$26. It fills the gap around $26. I’m in favor of taking some profits, even though I still like the chart.
A few weeks ago I said I wanted to sell Tapestry (TPR) - Get Free Report on that gap fill near $17.50 and it turned down without filling the gap. It is back on the edge of the gap again and I still want to sell it should it fill that gap.
The McClellan Summation Index is still rising. It would need a net differential of negative 4,100 advancers minus decliners to halt the rise, which is essentially two really awful days in the market. That means it has a thick cushion.
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The IWM:SPY (IWM) - Get Free Report (SPY) - Get Free Report ratio made a higher high for the first time in two years. I don’t know if ratios really work the same way in terms of measuring prices as regular charts do but one would think as long as the ratio stays over .44 it measures up near .48.
Vir Biotechnology (VIR:Nasdaq) was a chart we looked at about a month ago. It hasn’t done much but it has managed to cross that downtrend line so now I’d like to see if it can get itself up and over 35 so it can truly start the bottoming process. I’m encouraged and like the chart.
My first instinct when I look at United Health (UNH) - Get Free Report is to stay away because it looks like a big failure up there. But instead I will say it needs a correction and should it break under $270 that would become very concerning on a longer term basis, because you don’t want a lower high and a lower low and that’s what breaking $270 sets up.