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The Market Caught Up With Its Own Statistics

But the big question now is whether there will be follow-through?

The Market

There is a lot of finger pointing going on after Monday’s reversal. By finger pointing, I mean everyone wants to know exactly what news was responsible for the reversal. Some want to say it was the news that California is shutting down again. Some prefer to consider maybe it is the upcoming July 15 tax deadline.

I ask you this: If it’s the California news, then why did the hot tech, and so-called work-from-home stocks take it on the chin the most? Sure, there was selling in the return- to-work stocks, but not like we saw in the favored technology group.

So maybe it’s taxes? OK, then why were we up so much in the morning? Did people look at the calendar after 12 p.m. on July 13, and say, uh oh, I owe taxes in 48 hours? That too seems like rationalizing to me.

I have a better explanation – of course I do. As per my Saturday Twitter poll, there were simply too many bulls! The DSI reading for Nasdaq being over 90 for so many days could be another reason. Or the narrowing of the rally. Or the far too low put/call ratio. All we know is that Monday the market finally caught up with the market’s statistics. What we want to know is if there will be follow-through.

I think there will be.

I have exactly one reason to think there won’t be follow through for Nasdaq and that is that the volume for the QQQ (QQQ:Nasdaq) rose, although to be quite frank, considering the reversal, the volume should have been a lot higher.

Let me explain the reasoning for this volume indicator with the QQQs. When you don’t know what to sell, you go to the most liquid, easiest thing and that is the exchange-traded fund, QQQ. So, high volume declines in this ETF tend to be positive in the near term, because it means folks got scared in a hurry. But what happened Monday was that there was real selling and real selling on high volume in the high flying names and that is not typically when you see high volume in the QQQs. They don’t typically sell both.

What I think we saw, at least on some level, was an exhaustion on the upside in so many of these hot names. That’s why I think we’ll see some follow-through later this week.

New Ideas

Let’s take a look at the hot stock, Shopify (SHOP) - Get Free Report. You can see that Monday’s action is a bit similar to that of late May. The main difference is that SHOP has been sideways for more than a week now and last time it rallied into the high. Either way, it did not turn and scream higher, but rather took a few weeks to find its footing. That black line is the next support area to watch. Now it comes in just over $800. By the end of the week it’s $850.

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Today’s Indicator

The 30-day moving average of the advance/decline line is still overbought.

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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.

VanEck Vectors Gold Miners GDX (GDX) - Get Free Report hasn’t done anything wrong yet and as long as it stays over $36 it seems OK, but I am not that interested in buying more here. There is a small measured target around $40, so it’s really quite close to the target right now for my taste. It either needs time to go sideways and correct or a good shakeout.

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Turtle Beach (HEAR:Nasdaq) hasn’t done anything wrong. I might have another look at it on a move toward that uptrend line around $15-$16.

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ProLogis (PLD) - Get Free Report looks so indecisive to me. I think I would prefer to wait for a breakout on the upside before getting involved. And If already long then breaking the uptrend line would have me concerned.

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If the Utes rally (and I like the Utes) then Verizon (VZ) - Get Free Report should rally, as well. The problem I have with VZ right now is there are so many layers of resistance overhead that it is hard to see an easy path forward. First resistance is about a buck higher from here and then the next is around $57.

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