There was some improvement again Tuesday. The improvement was that breadth was better. It could have been much better.
Just to put it in perspective, last Tuesday – exactly a week ago – the S&P 500 was up 32 on the day. Breadth was a net positive 1,125. Now the S&P was up 48 and breadth was positive 1,270. In my view, it should have been positive 1,500 considering how much the Russell 2000 was up. It was also not enough to turn the McClellan Summation from the current down to up. That would require another day of very good breadth. The chart is shown below.
The best news, at least from my perspective, was that the Investor’s Intelligence bulls fell to 47.6%, which is the lowest reading since October. This is no surprise – we discussed the possibility of this on Monday -- but it’s a positive to me.
Do I still think we’re going to see ups and downs? Yes I do. One reason is that is typically the sequence. Another reason is the Daily Sentiment Indicator (DSI) for the Volatility Index is back at 15. A few more days of oversold rallying and this will go back to single digits and single digits for the VIX often see a whoosh back down in stocks.
The chart of Cummins (CMI) - Get Free Report started the day well and ended poorly. I am a bit fixated on this chart, but it could be any of these stocks that have fallen so much in the last four to six weeks. My point when it comes to them is that they need to start making a stand. A healthy market has wide participation. An unhealthy one has a handful of big cap market moving tech stocks that pull the indexes up.
I am going to use the chart of iShares Russell 2000 Index (IWM) - Get Free Report to show you what I think could happen in all of these stocks, or at least some of them. Some sort of head- and-shoulders or W-patterned bottom.
I am still waiting for Lyft (LYFT:Nasdaq) to lift itself up out of this base. Earnings are next week.
In early January I recommended Albermarle (ALB) - Get Free Report, and it’s done quite well. The base from which it broke out measures to this $90 area, and there is a prior high here. I would be inclined to sell a little here, but use a trailing stop on the remainder because if the 90/100 rule kicks in, there’s an additional 10% in it. The 90/100 rule is that 90% of the stocks that make it to $90 make it to $100.
The chart of the McClellan Summation Index is below:
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When it comes to Malinkrodt (MNK) - Get Free Report, I think I would be better off not knowing the name of the company. The base only measures to $6, which it tagged already. But as long as it stays over $4, it gets the benefit of the doubt.
Slack Technologies (WORK) - Get Free Report is up a lot Tuesday and at resistance, and while the breakout appears to be around $24, the reality is that there is resistance all the way up. If you want to see this chart improve, I think you want to see it trade as I have drawn in blue.