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The Ride’s Not Over Yet

The bulk of the rally is likely behind us, but we ought to have more ups and downs for a while.

The Market

Here’s the part where the market starts to chop. We haven’t had back-to-back up or down days since Thursday. What is truly amazing is that Nasdaq hasn’t had consecutive up days in a month. Yet it hasn’t performed as poorly as any of the other big cap indexes.

Tuesday was the end of the quarter, so there were plenty of weird-looking moves. Breadth was not bad at all on a day the S&P was down 42 points. Net breadth was negative 350 on the New York Stock Exchange. The put/call ratio was high at 117% and the Volatility Index was solidly red.

Those are all items I would put on the positive side.

Other positives include the number of stocks making new lows is still not expanding, and the McClellan Summation Index (shown below) is still rising. I would not be surprised to see the market have another rally tomorrow, the first day of the new month/quarter.

But we are short-term overbought now. It’s hard to put a finger on the exact day we’ll be maximum overbought in the short term, because despite the rally it’s been quite choppy, much will depend on the market in the next few days.

Two indicators we need to watch are the put/call ratio and the new lows. The put/call ratio is key because we don’t want to see it get carried away with high readings, because that will start the 10-day moving average heading up again, after it has made so much progress on the downside. And we don’t want to see it go too low if we rally since we don’t want folks getting too bullish.

The new lows need to be watched, probably not today, but late this week and definitely next week, because the 10-day moving average will begin to rise next week if we don’t see a continued contraction in stocks making new lows.

In any event, most of what I see for the market is what I’ve been saying. The bulk of the rally is likely behind us, but we ought to have more ups and downs (rather than straight up) for the time being. I do not expect us to head straight back down to the lows just yet, but if we did do that I would expect to see positive divergences on such a move.

New Ideas

If VMWare (VMW) - Get Free Report can rally to fill that gap at $135 I would sell it there.

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The “Quarantine Fifteen” – pounds that is – is a real problem for many, so perhaps Weight Watchers (WW) - Get Free Report can get up there and fill the gap. I’d sell it at $22-$23.

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Today’s Indicator

The McClellan Summation Index is still rising. It would require a net differential of negative 2,800 advancers minus decliners to turn it back down.

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Q&A/Reader’s Feedback

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Unless CVS (CVS) - Get Free Report can scoot back up and over $60 in a hurry, I’d guess there will be a retest of those lows coming. If it can get over, then I’d say it’s started the bottoming process. But recapturing that line/resistance is key.

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I have good news for Autozone (AZO) - Get Free Report that top measured to $750 and the stock got there. Now it ought to start the bottoming process. If it came back to $750, I would buy it. If it can make its way to $1,000, I’d sell because right now it’s trapped between support down there and resistance overhead. Right now feels like a coin flip, which way it goes first.

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We saw a lot of charts that look like Brinker International (EAT) - Get Free Report after the Crash of 1987. They formed these triangles. A triangle is a continuation pattern that means the next break should be down. But in 1987, they broke down and they were false breakdowns. So for now, I’ll just say that a break under $10 would imply a retest of that low near $7.50. If you should be so luck to get a rally to $21, I’d sell it there.

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I view the chart of Autodesk (ADSK:Nasdaq) as I do the chart of Texas Instruments (TXN) - Get Free Report – that we have looked at several times of late. It came down hard, but not hard enough to be a total disaster (meaning it did not break prior lows by much) but the rebound has been a whole lot of noise. I’d sell a gap fill at $170, but that’s all I see.

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I get a measured target on Signet Jewelers (SIG) - Get Free Report around $2 so if this trip back down toward $6 doesn’t hold, I would clear out in a hurry. If it holds then a rally back toward 8-9 is doable and that would be the beginning of a bottoming process.

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