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The Market Touches Its Toes

We corrected, the major indexes bent, and nothing broke (except for one chart).

The Market

I take a few days off and we finally get a correction! You want to know the oddest thing? There is very little change in the indicators. And there is little change in the charts.

Let’s go back to the charts. With the exception of the Russell 2000, all the major indexes held their long standing uptrend lines, which date back to the spring. Look at the S&P 500 for example. It bent, but it did not break that uptrend line that has been in place since May.

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Or let’s go to the channel in the Invesco QQQ (QQQ:Nasdaq). When I left a few days ago, we were kissing the upper line of the channel. Friday we tried to break the lower line, but recovered to get back into the channel.

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I could show you plenty of charts similar to these. They bent, but they did not break. So let’s go to the indicators. New lows for Nasdaq continued to expand. In fact on Thursday and Friday, Nasdaq had more new lows than new highs. That is not what healthy markets do. The New York Stock Exchange is not as bad as new highs have stayed steady and new lows only increased somewhat on Friday. This has been the case for weeks now.

Breadth was bad, but it has been bad.

Heck, Friday’s breadth was actually good relative to what the S&P did. The best I can offer on that front is that the McClellan Summation Index, which is still heading down, needs a net differential of positive 2,400 advancers minus decliners to stop going down, which makes it a little bit oversold.

Folks did get a bit more bearish, though. The put/call ratio went over 1.0 for the first time since June. But look at the 10-day moving average of the put/call ratio. The blue arrow shows what it did in June’s correction. You need a magnifying glass to see this past week’s action, so sure, folks got a bit more concerned – but not enough. The 10-day moving average was at .90 at the late June low. It is now at .75.

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Then we have the Investor’s Intelligence bulls. Last week’s reading would not have incorporated this past week’s sell off (this coming week’s reading will) but the bulls got to 61.5%. Readings over 60% are red flags for the market. Typically a two-day decline will not be enough to fix that excess in sentiment.

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So the only thing that changed is some of the air came out of the complacency we had last week. It’s not enough for me to think we can simply head back up easily. Just think about the June whack and how it took three weeks for sentiment to shift. My Saturday Twitter Poll, where I inquire which direction folks think the next 100 points for the S&P will be, was split at 50-50. In late June over 60% were looking for more downside.

New Ideas

Let’s just look at some of those high fliers now so you can see what I mean when I say they bent but didn’t break. If we use a thick pencil you can see Apple (AAPL:Nasdaq) tested that uptrend line.

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So did Google, err, Alphabet (GOOGL:Nasdaq)

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Nvidia (NVDA:Nasdaq) didn’t even tag the uptrend line before it bounced.

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Shopify (SHOP) - Get Free Report didn’t break either, but it is still looking problematic to me, because it hasn’t made any progress in two months. As I have noted for months, a break of $900-ish is bearish for SHOP.

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On the other hand Twilio (TWLO) - Get Free Report broke – one of the few. Note it made a lower high last week and now made a lower low, under $240, and broke the uptrend line. It may bounce in the coming days, but my guess is TWLO is going to make its way toward $200 in the next few weeks.

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Today’s Indicator

Here’s the 20-day moving average of Nasdaq stocks at new lows, which is now higher than mid May.

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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 am inclined to think Quidel (QDEL:Nasdaq) can bounce from here. What I am unsure of is whether it can fill that gap overhead at $220. So, for now, I would say bounce, but if it breaks under $140, I’d be gone.

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WestRock (WRK) - Get Free Report is similar to the chart of International Paper (IP) - Get Free Report that I like. It’s a base in the making. It really needs to get over $34 to complete the base. It might take some time to do it. For example, if sentiment was where it was in late June I would think WRK could do it imminently, but since it is not, I figure it might take some time.

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I give Ford (F) - Get Free Report the benefit of the doubt to rally as long as it stays over $6.50. It might just go sideways from here.

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AbbVie (ABBV) - Get Free Report has a big yield, but not a great chart as it has been making lower lows and lower highs for two months now. A break of $90 and I would give up on it.

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CNX Resources (CNX) - Get Free Report is a chart that intrigues me. It might be forming a right shoulder of a head-and-shoulders bottom here. Again if the market were oversold with poor sentiment I would like this chart a lot more. But I am willing to see if this is going to work so as long as it stays over that uptrend line I’m interested since the risk/reward is good.

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