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Momentum Fizzles

This is the overbought condition at work and breadth is strong, but don’t let your guard down – the 10-day moving average of Nasdaq’s new lows is rising and the Transports haven’t made a higher high in more than a year.

The Market

As you can see, the market has lost the upside momentum. That is the overbought condition at work.

But, still, breadth was quite strong, even though the S&P was barely red. I think markets with good breadth are good; a pullback is healthy.

Don’t get me wrong, however, it’s not as though everything is hunky dory.

For example the 10-day moving average of Nasdaq’s new lows is rising. The Transports haven’t made a higher high in more than a year. The Volatility Index has been green for two days, as well. But good breadth typically means a pullback is healthy.

There are a few charts to look at now. The first is the relationship between the iShares Russell 2000 Index (IWM) - Get Free Report and SPDR S&P 500 ETF Trust (SPY) - Get Free Report. It really is trying to get itself up and over this downtrend line. If it does, I think it will be like when the Bank Index finally crossed its line over the S&P. But can it do it with the market so overbought?

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Another chart of interest to me is the chart of the PowerShares QQQ Trust (QQQ:Nasdaq). If I do a measured target on them you can see we get $210. Now I realize it is best when charts hit a target and indicators are bearish or bullish if they are downside targets! But least we should be aware that the QQQs are getting to a measured target.

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Finally on a sentiment basis, CNN’s Fear and Greed is now at 87. This is similar to the DSI, over 90 and it’s gone too far. It becomes much harder to make money on the upside when this is over 90. It doesn’t mean it can’t go farther, it just means it gets late and a correction is needed.

Sticking with sentiment, the DSI for the Volatility Index is at 17 and for Bonds it’s at 25. So these two readings are on the verge of getting extreme. I’m more interested in the VIX right now, only because the DSI went down while the VIX was green.

New Ideas

For those of you who played the Macy’s (M) - Get Free Report to fill that gap from November, it has done so. It is now at resistance. I do think it can make a try for that gap near $18, but this is Macy’s and it is up 10% from when we first talked about it so I’d be inclined to sell some here just in case it can’t get over resistance.

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Shopify (SHOP) - Get Free Report, which has had a terrific run, is now up near its old high, so I expect some resistance in this $400-$410 zone. I would love to see some consolidation or even a small correction before it makes another attempt at rallying. It’s rallied almost a hundred points since I wrote it up in late November.

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Today’s Indicator

The Volume Indicator is at 53%, so it leans overbought but not terribly so.

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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.

The question is if Schlumberger (SLB) - Get Free Report can get through $40. I think it can. I would like to see it have a pullback first, because I think that gives it more oomph to get through. This is the third or fourth time up here in the last six months, so it has been eating through that resistance with each push up there. A pullback to the uptrend line would be terrific, but might be too much to ask.

One reason it could, or ought to, pullback is the DSI for crude oil got to 80 on Tuesday, which can often cause a pullback in the commodity. Over 90 and I’d go with more than ought to.

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I have highlighted Bunge (BG) - Get Free Report as a long-term base in the past, so I was asked if I still think that is the case. The answer is yes. But it really needs to get up and over $58 to give me more confidence.

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I was asked for a measured target on Las Vegas Sands (LVS) - Get Free Report, which I recommended on that retest of the downtrend line at $60. The measured target is the mid to upper $70s. It is difficult for me to imagine that it will get there in a straight line. It could use a rest or a pullback from here but that’s the target.

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