Skip to main content

The Indicators Don't Quite Line Up

I'm still hopeful for a rally this week, but I don't believe such a move would go anywhere special.

The Market

As I sit and stare at the indicators and the charts from last week, I find very little that has changed. Yes, we did see panic return on Friday via the put-call ratio, which zoomed up to 114% -- its highest level since the 115% reading at the April 11 market low. But if such a reading came as a surprise to anyone, I would be shocked. After all, between the Russia-Ukraine situation and everything else, the media has scared everyone into believing World War III will begin this week. At least that's what it sounded like to me all day on Friday.

But was there much selling in the market? We only saw this in the momentum stocks, the same place where the selling has been concentrated for the last six weeks.

Many will ask if this has constituted a retest of the recent lows. However, a retest requires a visit back to the lows, not a 50% retracement -- so, by that measure, the answer is, "no." That, in turn, means we can't stack any current indicator against where it was on April 11.

Last week, I noted that I thought the market should pull back and rally again, and I do believe that a rally early this week is still doable. After all, if we don't go to war Monday, there could very well be a sigh of relief in the market. The middle of the week brings along the Federal Open Market Committee meeting, so unless Federal Reserve Chairwoman Janet Yellen opts to throw cold water on the Fed Party, this could also give stocks a boost. If that weren't enough, we may also see some markups for the end of the month.

But let's face it: If the indicators are not lining up for more than another brief upside move, then why focus on it? Should we get a retest with positive divergences, I will be happy to be a contrarian and scream about a rally. But, for now, the market is in the midst of a decline.

In order to see a proper retest, we need one of the major indices to break to a lower low. That means the S&P 500 would have to break 1814 or the Nasdaq would have to break 3991 -- the latter of which also happens to be the neckline of the head-and-shoulders top -- or the Russell 2000 would have to break 1095. One of these breaks, moreover, would have to be accompanied by fewer stocks making new lows. Even better would be a higher low in any one of the indicators I follow, such as the McClellan Summation Index or the Overbought/Oversold Oscillator.

The best news I can offer you is this: I think that, if the market goes back down to those levels, the CNN Fear and Greed Index will sink back under 20 -- indicating high levels of fear -- and we could see some positive divergences. At this point, it is too soon to tell. For example, the Nasdaq is about 80 points from a lower low, and Friday produced just 60 stocks at new lows, as compared with 128 at the April 11 market low. There is a good chance for fewer new lows, but that reading of 128 is not extreme enough for me to maintain a high degree of conviction.

I believe many will discuss the 50-day moving average line on the S&P this week, as this level stands just below where the index's current level of 1858. I also believe the 1100 level on the Russell 2000 will be a big topic of discussion, both because it's a round number and because it's the area where the Russell stopped two weeks ago. In addition, the 200-day moving average line is at 1110.

I still believe we might see a rally early this week, but I am not hopeful such a move would go anywhere special.

Read Helene's latest column here.

New Ideas

I have gone through hundreds of charts in search of technical basing, and I must report that these formations really are few and far between. A few months ago we managed to find some energy names in such a search, but now I believe many of these are overdone on the upside and in desperate need of a pullback or consolidation.

Some of the gold and precious-metals stocks are bottoming, but they are quite early in their quest. Thus far, the SPDR Gold Trust (GLD) - Get Free Report has been working on that "W"-shaped pattern I have highlighted here several times. However, the reality is that the GLD would have to rally to around $134-ish before it would even be on the verge of completing the base. In other words, nothing feels terribly imminent there in terms of a breakout from a base. For now, I would use a stop under these two recent lows around $123.

Image placeholder title

View Larger Chart Here

We have looked at Potash (POT) fairly often since the stock collapsed nearly a year ago. I still think it is in the base-building process. I also remain a fan of Agrium (AGU) longer-term.

A smaller fertilizer stock, and one that is also trying to base, is Intrepid Potash (IPI) - Get Free Report. I would note that there is some activism going on in Intrepid, as about six months ago a group took a stake in it. I think the chart can push up toward $17 but my guess is that, unless there is some surprising news, it will not get through that level on the first trip up -- it will take time for it to push through. As long as it stays above $14, this will remain a base in the making, with an eventual target near $20-ish or higher.

Image placeholder title

View Larger Chart Here

For those who like bottom-fishing candidates, some of these dollar-store stocks have started to perk up. Family Dollar (FDO) has no base to speak of, and only recently made a new lows, but it had an outside reversal day on Friday that caught my eye. I can envision it starting to trade as I have drawn in, to flesh out a head-and-shoulders bottom. That top measured to $58-ish, so this is the area where Family Dollar ought to start to find some solid footing.

Note I still like Costco (COST:Nasdaq) in this retail group.

Image placeholder title

View Larger Chart Here

Meanwhile, I look at the chart of Disney (DIS) - Get Free Report and I see lower highs and lower lows. The stock might not collapse too far due to support in the $74-to-$75 area, but it will appear headed for that area as long as it stays under $80.

Image placeholder title

View Larger Chart Here

Today's Indicator

The Hi-Lo Indicator is moving upward, but my notes say it ought to run out of steam by the end of the week. For now we're more focused on the day-to-day readings of new highs and new lows.

Image placeholder title

View Larger Chart Here

Q&A

A reader asked me to follow up on IBM (IBM) - Get Free Report, a stock I flagged as a "Dog of the Dow" back in late December. My target had been in the $190-to-$195 area. The stock performed a little better than that, but it has since come back down. While the chart is still fine on a longer-term basis, I think too many folks have fallen in love with it and have not yet given up on it. That said, I'd probably recommend buying IBM again near $185-to-$186 and allow it to attempt improving from that level. But I do not foresee shares rising much further than that overhead gap at $195.

Image placeholder title

View Larger Chart Here

I have no idea what to do with a chart like Home Depot (HD) - Get Free Report. The stock hasn't gone anywhere in a year! If it can get above $80, and if the move really looks like a breakout, rather than a move above $80 that sputters out, I wouldn't argue that the chart is going higher. Mostly I'd call it a stock in a trading range between the low $70s and low $80s.

Image placeholder title

View Larger Chart Here

Home Depot's competitor, Lowe's (LOW) - Get Free Report, does not look so great either. It's got a lot of support at $46-ish but also a lot of resistance at the $48-to-$49 area. For now I'm inclined to think the stock is trapped between these two areas, but it really looks as though an earnings miss could cause it to gap under support.

Image placeholder title

View Larger Chart Here

High on Tech

High on Tech

Let's check sentiment, why you shouldn't trust any bounce from the producer price index number, and what the heck is up with those put/call ratios?

Bond Relief

Bond Relief

Here's why bonds could use a little respite as they were the only thing to really move today. Also, let's look at sentiment and McDonald's.

Breaking Bank

Breaking Bank

Suddenly everyone noticed the banks are not so hot. Also, let's look at new lows, energy and Exxon, and ... vomiting camels ...

A Rally Last Week? What Rally?

A Rally Last Week? What Rally?

It's almost like what happened last week never happened. Also, let's check the indicators, the overbought reading, energy, transports and ... Tesla.