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Not a Great Setup

The market got a whoosh and a rebound, which did at least relieve the short-term oversold condition.

The Market

The market got a whoosh and a rebound. I don’t think it was a great setup but at least it relieved the short-term oversold condition.

Why wasn’t it so good? Once again, I cite breadth. The net breadth today was plus 630 on the NYSE and the S&P 500 was up 15 points. Compare that to yesterday’s 11-plus-point decline on the S&P where the breadth lost about 1,400 issues. If your math skills are rusty, that’s a 4-point gain in the S&P with a nearly 800-issue loss in breadth.

This doesn’t mean the market can’t rally some more, but, as is typical, I would then look for another decline thereafter. And in case you haven’t noticed, the S&P is trading where it was a month ago. Heck, we were right near here in July.

If the market does turn down again, how long do you think it will be before we hear yelling and screaming about the head-and-shoulders top in the S&P? I would give it a day at most, especially if it falls below the 2010 level and the downside has any oomph to it.

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The good news is that it was an outside reversal day in the S&P. The bad news is that the statistics behind the rally were not terribly impressive.

I want to move over to the chart of iShares iBoxx High Yield Corporate Bond (HYG), an ETF to be long high- yield bonds. We have followed along as this chart has mapped out a pattern similar to the one in July. If I haven’t shown this chart every day in the past few weeks, it has to be close to that! Today, folks started to notice it and they noticed the divergence lasted even as the market rallied. Generally, that is a negative. However, I have my eye on this line of support. If HYG can hold on above this $92-ish level, then I think that would be a positive. I don’t think it breaks 92 by much but if it does, I do not think the stock market can hold on.

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Finally, we did see a rally in oil today. But again, we find it sits below that resistance line. If oil can move above this line, then I think it will be a significant change for the commodity as it changes the downtrend that has been in place to at least sideways -- and maybe even higher! Seriously, if it can break out above this line, the target on U.S. Oil (USO ) will be near $36.50.

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I want to wish all who observe the Jewish New Year of Rosh Hashanah a very Happy New Year and all the best in the coming year!

New Ideas

I was asked if I still like McDonald’s (MCD) as much as I liked it in late August. It had a nice push up and then collapsed -- but I think that collapse made the head of a head-and-shoulders bottom. It obviously needs to get over that downtrend line at $95 and then it has the gap fill around $96.50. But the hate for this stock is so high and the yield is decent as well. Besides, their coffee isn’t bad!

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I was also asked about Monsanto (MON), which is desperately trying to bottom. As long as this stock stays above $114 in the short term, it has a very good chance of poking over that downtrend line at $118. There is still support all the way down to the $112 area, but if it gets down there again, I am not as certain it will hold.

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Today’s Indicator

The Volume indicator is not oversold.

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Q&A

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.

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I have tried unsuccessfully to pick a bottom in Noble (NE). While I think it is oversold enough to bounce, that top measures to the $21-ish area, so it will probably bounce and come down one more time.

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As you can see on the chart below, Southwestern Energy (SWN) has support at $35, and I must say I am unsure how to measure the top. My inclination is to say the next target is $33-ish. So I suspect it will get a bounce or some sideways action and then one more whoosh lower, perhaps on some tax loss selling in the next month or so.

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I think U.S. Natural Gas (UNG), an ETF to be long natural gas, is oversold enough to bounce. But I am still undecided as to whether or not it can break out on the upside over $22.50. So on the long side, I would use a stop below today’s low. If it breaks below that, it will likely go below $20 in a hurry. Keep in mind that the storage numbers are due out on Thursday morning.

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