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The Good News (It's Not What You Think)

Wednesday's mixed action contained some positive signs, and here's a hint: They had to do with new lows.

The Market

I have some good news for you from Wednesday’s trading session. No, it’s not that we reversed. It’s that there were actually fewer stocks making new lows on that move down to Monday’s lows. That is the first time we have seen a little bit of that.

I would also remind you that the “what if” for the McClellan Summation Index reached an oversold condition after Monday’s trading. And Thursday, the Nasdaq Momentum Indicator is officially oversold. When I walk Nasdaq down 200 points for the next week, the Momentum Indicator goes up, not down. That’s the definition of oversold.

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The Volatility Index also didn’t make a higher high and closed down on the day. But there is a question about the W pattern. So let me address that. And let’s use the VIX for it.

Take a look at the month of March. We had a low in early March, we rallied and came back down in late March. Did we come all the way back down? No. The VIX got jumpy, though. But that’s what I call a W pattern.

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Now look at May. We came down in early May. We bounced and came back down. This time we made a lower low, by a wide margin. In May the VIX made a much lower high. But no matter if it is a higher low or a lower low, the pattern is similar to me: Up then down.

How can I say a higher low and a lower low are similar? Because at both points it’s that the intermediate-term indicators are oversold. And when the intermediate-term indicators are oversold, you have less of a chance of getting chopped to death and more of a chance that the market can rally well.

Now let’s talk about bonds, since that’s what my inbox is filled with. The Daily Sentiment Index for bonds got to 98 two days ago, and was 98 Tuesday, as well.

Wednesday’s reversal sunk it back to 89. Was that a blow off top in the iShares Barclays 20+ Year Treasury Bond (TLT:Nasdaq)? I have no idea, since we never know until after the fact. But I do know it needs a pullback, because it’s gone over that line.

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And on gold, the DSI went to 97. And it reached my measured target. I’m a fan of profit taking there.

New Ideas

I had a question on the QQQ chart. As I have been eyeing that gap to be filled in the S&P 500 (noted here Monday) the chart of the Invesco Trust (QQQ:Nasdaq) is no different. I’m eyeing that gap. However if that gap cannot be filled and the QQQ’s cannot get over $185,

I would consider the chart pattern bearish because it would leave an island up there.

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Today’s Indicator

The Volume Indicator got down to 47% this week. So, it is the first intermediate-term indicator to step a toe into oversold territory.

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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.

Kraft Heinz (KHC) - Get Free Report reports earnings tomorrow, so I hate to make a comment before earnings because it’s a coin toss. But I have two thoughts on the stock. First if earnings disappoint and it fills that gap around $29, then the stock is likely to rally. Or it’s just forming a base that leads to a rally. What changes my mind is a gap down under the May low or a failure at $32.

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Disney (DIS) - Get Free Report broke that line on a gap and is trying to get back to resistance. Unless it can gap back up and over $138, I think the stock is likely to come down to the $128-$130 area, before the correction is done. By then we should hear how you “can’t buy Disney.”

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Google (GOOGL:Nasdaq), err, Alphabet, had great earnings, gapped up, came down and filled the gap and has held the uptrend line. Seems like the stock is OK here. My guess is it fills that gap and chops around a bit but this $1,120-$1,140 area is good support.

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