There are so many negative divergences in today’s market I’m not sure I know where to begin. But I do feel the need to cite them.
Breadth. It was red most of the day, but in the end it turned slightly positive. Either way, positive 200 for the New York Stock Exchange is pathetic for a day when the S&P is up 20 points. So now we have a chart with a potential negative divergence (one day makes a slight one; need a trend to fuss over it). The blue line is now far off the all-time high (breadth), while the S&P is whiskers away.
Then there are the number of stocks making new highs. The NYSE didn’t even have 200 new highs on an (almost) new all-time high and is far off the reading from May at 700-plus, and certainly far off the 400-plus from a month ago.
Nasdaq did make a new high in the index and the number of stocks making new highs was barely over 100 stocks. Back in March there were 500 stocks making new highs. Heck, a few weeks ago there were almost 300.
Now let’s talk about the Semis using the SOX Index. It has lagged this week in the tech rally. It had been my contention back in May, when I turned bullish on tech that the semis should rally. They did, but in fairness iShares Expanded Tech-Software Sector fund (IGV:Nasdaq), the software stocks rallied a lot more.
If we look at the SOX relative to Nasdaq, we see that the semis tend to lead. Point A shows that big peak in late August last year for Nasdaq, but look where the semis were relative to Nasdaq. A warning: At point B in early February the semis relative to Nasdaq were again near a low, not confirming. In fact, the only time I see that the SOX peaked relative to Nasdaq and Nasdaq kept on going was in December of 2020 (arrow on the chart).
I do think Nasdaq has some time on its hands when it comes to rallying a bit more, but I think it is likely by the end of this month (late next week) it will have run its course of outperformance. The DSI for Nasdaq is now at 83, so I think you can see that we may get one last fling upward, but the runway seems short.
Just prior to my vacation, I did have a favorable nod toward Amazon (AMZN:Nasdaq), as I thought it could make a stab at the old high near $3,550. It is nearing it. While I would take a few profits here, I do think this could make it through. But given that Nasdaq will be getting long in the tooth within the next week or so it’s not a bad idea to book a few profits just in case.
Prior to leaving, I was on the lookout for a possible low to get long CoinBase (COIN:Nasdaq). I thought we got it around $222 two weeks ago, but it rallied to $240 and died, so I was wrong. I am, however, willing to believe today’s spike low could be a low if you want to bottom fish. Under there and then I’d give up.
The McClellan Summation Index is heading down. It would need a net differential of positive 1,500 advancers minus decliners to halt the decline.
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ServiceNow (NOW) - Get Free Report is coming into some resistance from that downtrend line and those prior highs around $560, not to mention the gap-fill just overhead. If I were long, I would be inclined to sell a little bit here. And I would hold the rest in hopes that it could make it to that $560 area. Then I would put in a stop under area $525.
Affirm Holdings (AFRM:Nasdaq) needs to hold today’s low around $60. That means the risk/reward here is decent, because if it turns south and breaks $60, you know you are wrong.
Trade Desk (TTD:Nasdaq) looks to me like it runs into a lot of resistance as it gets near $70, so I’d be a fan of selling some up there.
Elastic NV (ESTC) - Get Free Report is not my kind of chart because it is up in a straight line since early May and nearing resistance. I would have a look at the stock on a pullback near $135 (lowest line).