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That Smell? That Was Breadth Today…

Yes, it was bad, in case you didn’t notice.

The Market

It would be shocking if you didn’t see how bad breadth was relative to the rally in the S&P. That makes four days of poor breadth readings relative to the indexes. But the indicators still haven’t changed.

I know I sound like a broken record on that score, but it’s true. And as someone who is a slave to the indicators, I must remain that way. Breadth can be poor. But if it is not poor enough to change the indicators, then it’s just poor breadth.

For now, the McClellan Summation Index continues to rise. Its cushion has shrunk, it’s thinned out to where it would require a net differential of negative 2,000 advancers minus decliners to halt the rise, but the direction is still up.

On a short-term basis, the market should finally reach a short-term overbought reading between now and Tuesday. On an intermediate-term basis, it’s still a difficult project to pick when that gets overbought. The earliest I see –- and this is the earliest — is late next week. But I will continue to monitor that time frame.

Again, if you want to be bearish, I think you need to wait for breadth to falter enough to change the indicators and for sentiment to get too bullish. And sentiment is still far from too bullish.

We had the shift yesterday in the Investor’s Intelligence poll, but the American Association of Individual Investors continues to show more bears than bulls. I don’t put that much stock in this survey, except that the four-week moving average of bears is still high. Beginning next, Thursday we will replace some high readings, so it should begin to head down after that.

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One thing I want to discuss is the banks and small caps, and how poorly they have acted. You will see down below, I have been asked to look at some banks, even some stocks that are down and out. These are the stocks that are forcing breadth to be so poor. Should they rally again breadth will improve. If the Gilead (GILD:Nasdaq) news makes folks feel better about coronavirus then perhaps the "stay at home" stocks that have surged this week take a backseat to the "go out" stocks.

New Ideas

A few weeks ago I was asked to look at Baidu (BIDU:Nasdaq) and at the time I said if it can go sideways for some time, I think it will improve the chances that it rallies again. The stock has gone sideways for two weeks now. I’d like to see it breakout over that $105-$107 area now. The company is slated to report in late May.

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Cyber-Ark (CYBR:Nasdaq) has lagged, but a move up and over $95 changes the picture. The company is slated to report mid-May.

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Finally, someone asked about oil. I will look at the chart this weekend for a more detailed view, but I did want to note that the Daily Sentiment Indicator (DSI) is at $17, so another down day or two might trigger a single digit DSI.

Today’s Indicator

The 10-day moving average of the put/call ratio continues to head down. Today’s reading of 90% was the lowest since the market started down. Perhaps by the end of next week this might turn back up.

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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.

If Wells Fargo (WFC) - Get Free Report can hold here, it would be mighty impressive. It is getting a bit oversold, so a bounce from around $26 should not be out of the question. I am just unsure how much more it can do after having given up the entire rally.

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Freeport-McMoRan (FCX) - Get Free Report is like a textbook chart, since it stopped right where it should have. Will it fill that gap around $7.20 and rally again? I am more inclined to think it comes down to tag that downtrend line before attempting another oversold rally. But in the big picture, there is no base to speak of, so it’s just short-term trading.

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Bank Of America (BAC) - Get Free Report has support here, so it should try and make a stand. But the way these banks have given up from the rally last week does not speak of strength. I am inclined to think if it can hold in this area there will be an oversold rally, though.

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I am intrigued by the chart of iShares MSCI Mexico exchange-traded fund (EWW) - Get Free Report for the Mexican stock market. If today’s action doesn’t give it up quickly then it would be a second retest and it didn’t even make it to the line this time. So let’s say as long as it doesn’t break that lower line I’m interested in it on the long side.

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The transportation ETF, the iShares Dow Jones Transport fund, (IYT) - Get Free Report should bounce from this $135-$140 area. I don’t want to see it break much under $135 though because that would ruin the chart.

Note though that all these very short term stocks, these with no bases, are in danger of rolling over and breaking, and – yes — retesting their lows. I suspect that wouldn’t come now but in May but it is something to be aware of.

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