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Things Could Get Bumpy

So fasten up, but the good news is we look ready to a rally early this week.

The Market

You want the good news first or the bad news first? Let’s go with the good news.

Let’s begin with that chart of the Invesco QQQ (QQQ:Nasdaq), since it really did bounce rather handily off that line that has been here since the middle of April. I want to make two points about this. First, I think the bounce is good enough to matter and could, or should, have some follow through. Second, I think it emphasizes in a major way how important that line is, so if it is broken it is meaningful.

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So, why do I think the bounce gets some follow through? Let’s start with the fact that the put/call ratio zipped right up to .91, which is the highest reading in a month. Here, I have plotted the put/call ratio (red) with the S&P (black) and you can see a jump up in the ratio often means a rally in the short (sometimes intermediate) term.

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And then there is the Saturday Twitter poll – my Saturday poll.

Last week we saw 54% looking for the next 100 points on the S&P to the upside and 46% on the downside, so naturally the markets went down. This week it’s reversed with 46% on the upside and 54% on the downside. This is not nearly as extreme as early July, when we saw over 60% looking for downside, but at least it shows us there was a sentiment shift last week.

Now for the bad news. That put/call ratio that saw the one-day rise? Well, look at it on a 10-day moving average: It’s curling under and beginning to rise now, usually a negative for the market.

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The cumulative advance/decline line using common stocks only has not made a higher high along with the S&P, which is a negative divergence.

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The McClellan Summation Index doesn’t need much to turn it back up but this last rise has been rather tepid.

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None of these indicators will be new to you, since they haven’t changed much in weeks. The one indicator that has changed is the Insider Ratio of Sales to Buys. For months I kept hearing how much insider selling there was and it never showed up on this chart that I get from Barron’s each week. It finally showed up this week. Do not try and match it up with the market indexes, because sometimes it lines up perfectly (see the March low) and other times it is months early (see the December high). The timing is not what matters; what matters is the ratio has finally tilted toward the bearish side of the ledger which is a way of warning us.

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Keep in mind the Citi Panic/Euphoria Model has been in Euphoria for a few months now, but as I have explained, here too it doesn’t always line up perfectly. Often you need the indicators to catch up. Now we have Insiders caught up, the put/call ratio’s ten day moving average caught up, the breadth lagging, and we also have the 21-day moving average of the put/call ratio of exchange-traded funds careening toward an extreme.

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Then there is the National Association of Active Investment Managers’ weekly survey, not what they think on the market, but how they are positioned. They are now exposed on the long side to the same amount they were at the end of 2019 and in September 2018.

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I do think there is a rally attempt early in the week this week, but the more intermediate-term indicators say that the next month or so could get rocky. And if that line on the QQQ chart breaks (there are a lot of big name earnings this week) it will confirm what the indicators are saying.

New Ideas

We looked at First Solar (FSLR:Nasdaq) a couple of weeks ago when it first broke out. I had a positive bias, and it has gone nowhere since. I still think it can rally again. But know that the earnings are out on Friday so there is risk holding through earnings.

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Early last week, I said I thought Facebook FB, which reports earnings this week, could come down to that line, and it has. If short, I would cover it because earnings will be out in a couple days. On an intermediate-term basis, though, it does look like it is developing a top. A break of this black line I believe would find support at the blue line around $210.

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Today’s Indicator

The number of new highs lags, but thus far the number of new lows has only expanded for Nasdaq, not the New York Stock Exchange.

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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.

Intuit (INTU:Nasdaq) is not my kind of chart, since it is the same price it was in May and yet is not down and out. It’s OK for a down and outer to be the same price, but a stock that is up should not be the same price it was in May. A break of that $270 to $280 area completes the top and measures to the $240 to $250 area. If it just goes sideways and doesn’t break, then perhaps a month or so from now it will look better.

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I stare at the chart of Nike (NKE) - Get Free Report each day, because one day I think it is going to rally and the next day I think it is going to break, and it never seems to do either. If you want to own it use a stop under $95, because that would break the uptrend line and break the prior low. It’s possible it just continues to grind sideways.

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I think Draftkings (DKNG:Nasdaq) can rally at least to that line around $42.

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