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Narrowly We Go

We’re not yet overbought, sentiment's off the charts bullish, and the market internals are lagging. Here's what all that means.

The Market

I am in a quandary.

As you know, my notes say the market is not yet fully overbought. That ought to arrive on Friday, or at least late this week. Yet, despite the Volatility Index being green today, the DSI for it fell to 9. If that wasn’t enough the DSI for the S&P tagged 90. The last time the DSI for the S&P was 90 was Aug. 26. I should probably remind you the market topped a day or two later, before heading into a correction.

If that wasn’t enough, breadth was terrible today for such a big up day. Net breadth was positive 850 with the S&P up 58. Thursday net breadth was positive 2000, with the S&P up 47. Not impressive, but at least still rising.

Up volume on the New York Stock Exchange was 59%. Last week I complained because it was hovering around 65%.

Nasdaq wasn’t much better. Up volume on the 225 point rise was 53%. Yes, it was barely positive. Last week Nasdaq saw two 200-plus point rallies both with, what was then disappointing, up volume readings of 65%.

So, yes, today was very narrow.

But what of sentiment you ask? Well, the put/call ratio was .69, which is the lowest reading since Feb. 22. Now, back then it was repeatedly low and this is the first low reading, but it tells us a lot about the change in sentiment.

In sum we’re not yet overbought, but we have sentiment off the charts bullish and the market internals are not leading, but lagging. I’ll give it some leeway, but I think the runway is short until we correct a bit.

New Ideas

I want to follow up on Shopify (SHOP) - Get Free Report. We looked at it a few weeks ago and I said if $1,100 breaks, then I thought it was likely to tag $1,000, which it did. It is now back to $1,145. A move to fill that gap at $1,100 I think would make it buyable, because it would be the right shoulder of a head-and-shoulders bottom. Alternatively, a move up over $1,200 should take it back to that $1,300-$1,400 zone.

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PayPal (PYPL:Nasdaq) has not gone anywhere in a month. If it can get up and over this $255 area, I think that would be a positive.

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As a reminder, I would love to see Energy Select Sector SPDR fund (XLE) - Get Free Report back in that $45-$46 area to buy again. However I am now watching very closely because this was the pattern I drew in about a month ago: rally and back down. And that second decline is the one I think we’ll like it on.

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Today’s Indicator

The 30-day moving average of the advance/decline line is not yet overbought.

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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.

We had a nice trade in CME (CME) - Get Free Report a few months back (I still like that chart longer term), but what of Intercontinental Exchange (ICE) - Get Free Report? Well, I can make the case that it is enjoying a much needed correction and ought to eventually come out on the upside over that $116-ish area. In fact, as long as it stays over $110, I’m in favor, but it does need to cross $116 to get some interest going.

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The question is will Medtronic (MDT) - Get Free Report ever break out? I remain optimistic, but at the same time, my patience is wearing thin. It needs a good shove over $120.

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Affirm Holdings (AFRM:Nasdaq) looks to me like a stock in a downtrend. If it can map out something akin to what I’ve drawn in blue, I would give up on looking for lower prices, but if that pattern cannot develop over the ensuing weeks/months, then I suspect it eventually gets near $50.

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