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Second Best

The first rally on Thursday was better than the last, and I’ll tell you why – along with another lesson on the retests.

The Market

The first rally of Thursday – when we went right up to the gap, but didn’t close it – was actually better than the last rally of the day that did the same thing. Why? Because breadth on the first try was much better than breadth on the second try.

However once again there was very little change in any of the indicators.

Just a few days ago, there were so many scoffing that we’d have a retest, because we had rallied 20% and weren’t going down. Then Wednesday showed up and the retest crowd got loud again. And what does Thursday bring? It is starting to sound like a consensus between retest and trading range.

I want to reiterate: The November to December 2008 period that has my eye. We rallied 20% off the November low, which coincidentally was the announcement of quantitative easing No. 1 -- similar to the QE announcement of last week’s low. We then spent the next several weeks with a lot of ups and downs, eventually looking like we were heading higher just as we went in for the retest.

The black arrow is the equivalent of the low from last week.

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With that in mind, let’s look at the Hi-Lo Indicator all the way back to 2006. I want to show you how this indicator, once it gets this low, rarely provides a “V” bottom. In fact, I can’t find one time it has. It has always retested. But here’s the key: The timing between the initial low and the retest is not short.

The blue arrow showed up in August of 2007. Some might remember the scene when my colleague, Jim Cramer, ranted about the Fed with something along the lines “they know nothing.” That green arrow showed up in March 2009. That, folks, is 18 months of tests and retests.

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Move your eyes over to the right, and we are in 2011. Those twin lows are two months apart. The first was August, while the second was October. Moving further along in time we’re looking at 2015 to 2016. The first move all the way down was in September 2015, with the second one in January 2016.

Even in 2018, the first tap was in October with the second one in December. So why should this time be different? What makes this time so special? Maybe it will be different, but history says not likely. History says the retest tends to come months not days, not even weeks later.

Therefore, I suspect by the time we are ready and set up for a retest, there will be very few talking about one. The same way no one talked about one as we headed into January 2009 on that chart above.

In the meantime, if we have just come off the November 2008 low, we should enjoy a few weeks of ups and downs.

New Ideas

I have drawn in what I think is not the best line on the chart of the PowerShares QQQ Trust (QQQ:Nasdaq), but important nonetheless. Since the highs, it has stopped the rallies. Getting over it would probably change the sentiment in the market to more relief, taking some of those sentiment indicators away from the extremes we’re still seeing.

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I was asked about EXACT Sciences (EXAS:Nasdaq) not long ago, and I want to follow up on it. If it can mill around and not break much below this mid-$50 area, then maybe it has a chance at getting up and over $65 to fill that gap at $70.

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Today’s Indicator

The 10-day moving average of the equity put/call ratio has backed off considerably. So here is one sentiment indicator that has backed off its extremes. A reading back near 60% would have me concerned.

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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.

WPX Energy (WPX) - Get Free Report, if it can get to $6, would be a great place to sell it. In fact, I would start by selling some at $4.50, just in case it can’t fill that gap.

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Once again, we find the pattern of a triangle, which is said to be a pattern of continuation, in the chart of Bloomin’ Brands (BLMN:Nasdaq). For now, I’d say it’s an indecision as it trades between $5 and $7. I think if it comes down to that $5 area, it is unlikely to break down right now, but the longer it stays under that top line the higher the odds are that it breaks the lower line, when it does come down. My guess is it just sticks in the trading range for now.

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I’m not sure what to do about Costco (COST:Nasdaq), because it hasn’t broken down, but can’t seem to rally. Is it over-owned already? I would, however, take a stab at it here with a stop under $270-$275.

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