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Verified Panic

The Citi Panic/Euphoria Model finally shows Panic – and here’s why I expect a rally and retest to come.

The Market

Late last week we looked at two periods in 2008 that could be guides for the current market. I thought we might look at another time frame. Let’s take a look at the post-9/11.

For those who need a refresher, the market was not coming off a high, having peaked 18 months earlier in March 2000, but you can see the September plunge on the chart that amounted to nearly 20% in a month. The market was closed for the week of the terrorist attack, so we missed four trading days that week. When we reopened we plunged, every single day.

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The subsequent rally took us up over the next eight days about 15%. Then we stalled and did a lot of ups and downs in October. We rallied again in November, making the entire gain from that low a bit more than 20%. But step back and look at the chart. Basically the first eight days was the rally and then we went into a six-month trading range of approximately 10%. Until we broke down again into the final plunge to the lows in late July.

My point in these exercises is to show you how plunges that come so sharp and deep and quick tend to have similar qualities on the rebound: They rebound quickly and if they don’t come right back down immediately, they tend to simply dawdle around, even if in the ensuing weeks it seems like they are simply off to the races again. They aren’t. Not when you look back a few months later.

The big change this weekend was that the Citi Panic/Euphoria Model finally fell into Panic territory. That is a positive, but as a reminder, in the fall of 2018, it got to Panic in late November, the market rallied, but the indicator continued further down into Panic for a few more weeks.

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Not much else changed with Friday’s action. I still think we can have another rally. The resistance at last week’s high is strong, not just from the high, but that downtrend line as well. I still feel it is too soon to come back down for a retest and we are more apt to see another rally. But as we can see from the two 2008 examples, the 2010 example, and now the 2001 example, the second rally tends to be smaller and not as robust as that lurch off the low last week.

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New Ideas

Let’s revisit that chart of Wynn Resorts (WYNN:Nasdaq) we looked at recently. At the time, I noted that it had basically doubled from the low and I thought that gap fill at $80 was first resistance. It has since come down quite a bit. But this is where the first test shows up. That gap fill at $58-$60 is the test. If it can hold there and rally, that would be good. But more than that, it’s about that low back there under $40. That is the low that needs to hold. That is the low that if it holds we can say it has begun the process of bottoming.

Stocks bottom with a series of moves back and forth between resistance and support. That’s the process I have discussed several times. It typically takes place over the course of months.

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Or let’s go back to Southern Co. (SO) - Get Free Report, which has now filled the gap and gotten close to resistance. A pullback could possibly form a head-and-shoulders bottom. At the very least a pullback toward $48-$40 would probably be buyable for another trip to resistance.

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Today’s Indicator

The Hi Lo Indicator is at 1%. It hardly lifted last week. Remember indicators like this should double tap, meaning they should lift and come back down.

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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.

You might recall I thought after Verizon (VZ) - Get Free Report put in that island in late February that pullbacks would make higher lows and the stock could be buyable. I was wrong. Now it has made a double bottom at $49, but the resistance overhead at $55 and higher looms. If it can trade between $49 and $55 for a few weeks or a few months, I would be able to call it a base. For now I would say it probably makes a try for $55.

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I was asked where would Shopify (SHOP) - Get Free Report be buyable again and for me that $375-$385 area is where it ought to hold on this trip down because it would fill that gap and tag that uptrend line.

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I would feel a lot better about Bank Of America (BAC) - Get Free Report if it could rally and fill that gap at $25. If it can do that then I think it can start the bottoming process. To start the process it needs to make a higher high than that peak at $24 in mid- March.

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