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Small Caps Are the Star of the Day

Now, here's what would take us to short-term and intermediate-term overbought around midweek next week.

The Market

I am somewhat surprised that we didn’t see the put/call ratio drop Monday. After all, the Russell 2000 was the leader, and so many have been complaining about how leadership has been narrow. Yet the put/call ratio was over 100%.

Still, not much changed in the indicators – well one thing has changed, a little bit. With breadth green for the last four trading days, it is looking more likely that we’ll have the short-term and intermediate-term overbought around midweek next week.

Just remember that we would need to see the indicators roll over and sentiment to be too bullish for us to get more than a modest pullback if that set up occurs. So far that has not happened, but as always I will continue to monitor the situation.

The Russell was the big winner Monday, and that means breadth was good, in fact it was the best breadth we’ve seen in seven trading days. And seven trading days ago the S&P 500 was up 75 points on the day, not 41 as it was Monday.

The Russell has been up for four straight days. It has not gone to five days in the green since late December. It is also pushing up against the 50-day moving average. I can easily see it – and the other indexes with a down day on Tuesday. But it won’t change my view that I think we’d then rally again this week.

The big question is what the Fed will do on Wednesday. So few seem to be chatting about it, but I thought I would remind you that I still think TLT (TLT:Nasdaq) should come down. There are two levels I am eyeing now: That gap fill around $165 and the support around $162. I do not think $162 breaks on this particular move down. I have drawn in blue how I think we might see bonds trade in the coming weeks.

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One final word, yesterday we looked at the chart of American Movil (AMX) - Get Free Report with an eye toward a rally if we saw the Daily Sentiment Index (DSI) for the Mexican peso fall to single digits. It is now 6. So that would be my go to trade for this metric.

New Ideas

I want to follow up on Pfizer (PFE) - Get Free Report, which we looked at a few weeks ago with a positive eye. It is finally heading into some decent resistance as it heading into the $39-$40 area. It’s not done anything wrong, but I would lean toward taking some profits.

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Johnson & Johnson (JNJ) - Get Free Report is another name we looked at in late March and early April with a positive eye and it has had quite a run. There is now resistance in this upper $150s area, so I’m in favor of taking some profits here as well, especially if it can tag that line around $158. It is quite overextended now.

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For those who ask about Alibaba (BABA) - Get Free Report all the time, it has pulled back toward support. If it can hold over this $200 area, it is probably oversold enough to bounce again. It is supposed to report next month.

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Today’s Indicator

The 30-day moving average of the advance/decline line is in overbought territory now, but I don’t expect it to be fully overbought for about another week.

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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 have had quite a few questions on Verizon (VZ) - Get Free Report lately, so it’s time to revisit it. I liked the stock when it made that island bottom in late February and then it rallied and collapsed. But I still liked it, especially with that double bottom around $49. It has had quite a run and is stuck at resistance. I think it tries to rally again, but there is a lot of resistance overhead that it’s going to need quite a bit of work to overcome it. In other words, it has done nothing wrong, but for now the upside is probably limited to those late 2019 highs.

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My focus in the oil patch has been on the fund XOP (XOP) - Get Free Report, not individual stocks, but I was asked to check in on Halliburton (HAL) - Get Free Report. Resistance is quite strong at $10 and like XOP, I’d love to see it fill that gap. I just have more confidence that XOP will fill the gap at $50 than I do that HAL will. I think HAL rallies to that $10 area, then we’d have to see about filling the gap. I suppose it gets the benefit of the doubt as long as it stays over $8.

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We looked at Lululemon Athletica (LULU:Nasdaq) with a positive eye a few weeks ago as it sat below that resistance line. At the time my target was around $220. Now, I would look for a next target near $240 to fill that gap above. However, now I would have a stop under $210.

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