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Shake It on Out

Not only does price change sentiment, declines in the market shake people out. That's what they are supposed to do.

The Market

We discussed on Wednesday how essentially "down is good." That’s because down gets stocks oversold. Down gets sentiment to shift.

We already know that the American Association of Individual Investors (AAII) shows little or no correlation to what all the other sentiment indicators show, but they did get decidedly more bearish this week with bears gaining 7 points and bulls losing the same 7 points.

However, for a few weeks I have been highlighting the National Association of Active Investment Management (NAAIM) Exposure Index showing how they had gotten over 100 a few weeks ago. Take a look at this week’s chart, and I think you can agree that not only does price change sentiment, declines in the market shake people out. It’s what they are supposed to do. They are a reset. At just under 60, this is now what I would consider neutral. I would love to see it back under 40 before the correction is over, because that would be where it was in December 2018. Perhaps next week?

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Down below is the 10-day moving average of the put/call ratio. It is not yet where it was in late June, but you can see it is starting to move. So you see, this too is moving in the right direction.

Speaking of June, we saw some selling Thursday, enough to get the TRIN (Trading Index) a smidgen over 2.0 on the New York Stock Exchange. I’m not really sure I trust TRIN much these days, since it has been so funky for so long, but this is the highest reading we’ve seen since late June so I’ll take this as a positive.

I want to point out also that there was no increase in the number of stocks making new lows Thursday vs. two days ago. In the "New Ideas" section below, I will discuss this in more detail, regarding stock charts, but at least for now there were 31 new lows on Nasdaq vs 87 on Friday. The ten day moving average of new lows however is still rising.

One chart I want to finish with is the Hi-Lo Indicator chart for Nasdaq. We looked at this a few weeks ago, because it had made a lower high and was heading down. It has come down quite a bit. Quite frankly I would love to see it get to an oversold condition (under 20%) before this correction has run its course but it is well on its way.

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New Ideas

I noted the other day that several stocks had not yet broken their trend lines. But now I want you to see how they are desperately holding on, not making lower lows. These names are important, because some of them have the ability to move the indexes. They are also the stocks that are still overowned. If they make lower lows, the indexes will break further. If they hold on, perhaps the indexes will make a stand. I’d prefer the break because a break gets panic and oversoldness.

Look at Apple (AAPL:Nasdaq) with the $110 level from Friday still holding.

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And, take Microsoft (MSFT:Nasdaq), which I noted two days ago could rally and be sold $210-$212. It stopped right at $215 two days straight, but that $200 support zone is still there.

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PayPal (PYPL:Nasdaq) looks like a head-and-shoulders top. But now look closer, since it hasn’t made a lower low since Friday.

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I will continue to highlight the $900 area on Shopify (SHOP) - Get Free Report, because despite higher lows since Friday this stock looks like a top. But it has to break $900 to be one.

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Today’s Indicator

The put/call ratio is discussed above.

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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.

I think that is a decent break on Lululemon (LULU:Nasdaq) and I am surprised there was no follow-through selling Thursday. There is an entire support area between $300 and $325, so I would expect it to find some support there but for now that’s the best I can say. If it plunged to the $300 area in the next few days I’d be willing to buy it for a trade because it would be grossly oversold.

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For now, CrowdStrike (CRWD:Nasdaq) has bounced off support. But that spike up to $150 hit the measured target so perhaps the stock will go sideways and just digest itself from here. If it trades under $120 I’d look for it to come down and test that uptrend line around $105.

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We have looked at Walgreens (WBA) - Get Free Report recently and I have not been a fan of buying, but boy has it had a bad few weeks. There is a measured target around $30-$32 so I would look for some bounce if it got down there.

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Medallia (MDLA) - Get Free Report has pulled back to support. If I thought the market was oversold enough to buy speculative names I’d be keep to jump on this but I’m not so sure. If you want to dive in, then know that under $30 and the chart turns sour.

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