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This Indicator's Climb May Not Be Over

I'm still expecting a pullback next week.

The Market

Once again we see the overbought market at work. Yesterday Nasdaq took a break and today it was the small-caps. So again, I will beat a dead horse: Let's go back to the ratio.

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We got the expected dip. I am not quite sure how long it will last because, as you know, we are overbought. But let me reiterate that despite the Russell 2000 ETF (IWM) - Get Free Report tagging a target and the Nasdaq-100 ETF (QQQ:Nasdaq) having so much volume that it should rally as of yesterday's action, I still think we will see another try higher in this ratio, perhaps when we relieve the overbought-ness.

Even if we look back at June, we can see the big surge up, the pullback and another push higher. It has been trading in a range for the better part of six to eight months, so I don't expect that range to collapse just yet. I can tell you this, though: If I am wrong and this does not have another push higher after a retreat, I think it is very negative for the market. That's because this would be a major lower high, and such a lower high would imply a greater likelihood that this breaks the lower end of the range on the next trip down.

Aside from that, I am sure you saw breadth was nothing to write home about considering the big up day. Net breadth on the NYSE was barely +500. Two days ago it was +1,000 on the big up day. However, net volume has been good.

The number of stocks making new highs fell short as well. Yesterday the NYSE saw 304 new highs and today there were 297. Nasdaq had 308 new highs on yesterday's big decline and today there were 283. These are all signs that we need a rest.

Then there is sentiment. The put/call ratio for ETFs was under 100% for the sixth day in a row. Below you will see the 10-day moving average of the total put/call ratio. It has plunged. Each time it has gotten this low we have seen some sort of sideways action or pullback in the market. It hasn't turned back up yet but I expect it will next week.

It is possible that the pullback I envision next week could look something akin to what we've seen the last two days, with one market down or flat (yesterday's Nasdaq and S&P 500) and another one still strong. Or today we saw the big-cap indexes strong and the Russell 2000 flat. I would prefer the whole market pull back because that's what tends to change sentiment.

At this point, my best guess would be if we pull back next week we'd then see a rally near Christmas again.

New Ideas

I want to address the chart of United Technologies (UTX) - Get Free Report. I wrote it up in early November as a positive chart and it rallied for a day or two and then plopped right down. Today it rallied right back to where it was then (OK, a bit higher). But the reason I highlight this chart is because if it can ever get over this $123 area that would be a big breakout. Some sideways or a dip from here would get the chart even more interesting. Or a push over the line and a retest of that line.

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One note on the banks. They did not trade well today. I'd like you to go back to that chart of Citibank (C) - Get Free Report I posted here earlier this week. Let's watch for that pattern to (we hope) play out.

Today's Indicator

The put/call ratio is discussed in full above.

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Q&A

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.

The Mexico Capped ETF (EWW) - Get Free Report has had a tough time in the back part of 2017. But I am very interested to see if it can hold over $49 because if it can, there is a funky little head-and-shoulders bottom that could develop. If it can bounce from the right shoulder area and then get over that downtrend line, it might mean Mexico would be a good long for the early part of 2018.

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You might recall I liked Steel Dynamics (STLD:Nasdaq) in October. It had that great run and then cam back to retest the breakout. I'd like to see a bit more work in this $37-$38 area, but there is an unfulfilled target in the low $40s, so as long as it holds over about $36 it should get there. And yes I still like Olympia Steel (ZEUS:Nasdaq), but it cannot get over that $21 resistance!

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Alerian MLP (AMLP) - Get Free Report, ETF to be long MLPs, bounced smartly off the line I have drawn. It is eking out a marginally higher high and there is volume (not shown). It's hard to know if it will stop at that red line or make it to the black one in a straight line, but I think it makes it to the black one at some point. Then I would reassess. I like it.

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