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Was That It?

Thursday’s crummy rally had one positive – breadth – but net volume disappointed and I still think we rally and go back down.

The Market

That was one crummy rally, wasn’t it? Oh sure breadth was positive — barely.

But the net volume was negative by almost a billion shares. That is not what I wanted to see for an oversold rally. Nor did I want to see the number of stocks making new lows on Nasdaq increase, but it did just that.

Aside from that there wasn’t much else to note in Thursday’s dreary market.

But I would say that on the intermediate-term front, the Nasdaq Hi-Lo Indicator is now at 24, so it inches closer to an oversold condition. The New York Stock Exchange’s is still far away at 41%, but it was 54% at the beginning of the week, so it’s moving steadily lower now, too. The oversold condition comes under 20%.

The best indicator I saw Thursday was the equity put/call ratio, as it soared to 98%. That is the highest since December. Let me note that the low in December arrived on the 24th but the first high equity put/call reading came about a week before that and the next one on the 21st. The chart of the 10-day moving average is shown below.

Then there are the American Association of Individual Investors and their weekly poll. They barely budged in the past week. But you might recall I like to look at the four week moving average of bears and it is now just shy of 38%. The December low saw it get to 47% and the May low got to 39%.

By my estimation, just because this is a moving average, it ought to take two more weeks for this to peak since four weeks ago the bears were 24% and two weeks ago they were 32%. So, if we replace that 24% with a reading in the 40s this moving average ought to shoot right up, shouldn’t it?

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The timing is somewhat interesting, because as we discussed yesterday, the earliest I can see the 30-day moving average of the advance/decline line push near an oversold condition is sometime after Labor Day, which is three weeks away.

For now, we’re still short-term oversold, but we seem to be using that up by going sideways. I still think we rally and then go back down, but Thursday was not a great rally.

New Ideas

Let’s look at the chart of the S&P 500, because everyone has this line at 2825, as if it’s a big deal. I suppose it is on some level, but look at the left side of the chart, in May, when we had a similar pattern and we broke. That was a very fast move down, but it snapped right back.

I bring this up, because I am always of the mind that if we break an important level and we get positive divergences, then it’s bullish. If we break an important level and we get confirmation of the break, then it isn’t.

So just breaking the level isn’t a reason to turn bearish, it’s breaking it with poor statistics that is bearish.

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Keep your eyes on FedEx (FDX) - Get Free Report. It’s come down ten bucks already this week, so I think if it snaps $150, it should get oversold quickly. But if it bounces lethargically off $150 and then breaks, I think the break can go farther, sort of like it got a running start.

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Today’s Indicator

The 10-day moving average of the equity put/call ratio is below:

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Q&A/Reader’s Feedback

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LendingTree (TREE:Nasdaq) should bounce from here. I suppose that top it broke down from measures to the $300 area, so that’s another reason for a bounce. But that’s the best I can offer right now, because there is no base to speak of. I suppose you know exactly where you are wrong (under $280).

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Seadrill (SDRL) - Get Free Report is a stock in a downtrend. And it shows no sign of abating that I can tell. The only good news is that it has a tiny bit of support here and should bounce. I think it would be a sale into any bounce, especially if it fills that recent gap near $3.

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Renewable Energy’s chart (REGI:Nasdaq) measures to this $12 area, but why would you want to catch that falling knife? It has shown no sign of even attempting to hold since it collapsed in May. Even that June bounce lasted one day before it died. If you are lucky enough to see a rally to $13 sell it.

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Target (TGT) - Get Free Report hit my upside target of $88-$90 a few months ago, so I should have fussed more. Unfortunately, when I was asked about it in July, I conceded that if you wanted to buy it, then a stop under $85 would do, since if it did manage to get over $90, then the 90/100 rule applied (90% of the stocks that make it to 90 will make it to 100). Then it died anyway and this recent rally looks weak to me. If it breaks that uptrend line, then I think it fills that gap near $72. I do not trust it.

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Amazon (AMZN:Nasdaq) stopped right where it was supposed to (prior high) and has sold off a lot more than I thought it would. It has some decent support at $1,700, so I’m inclined to think it holds that area, but I would like the market to get intermediate-term oversold and see around $1,700 as still holding before I decide to like it again.

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XPO Logistics (XPO) - Get Free Report has a habit of eking out a higher high and then giving back a good deal of the rally, so I’d be patient with this chart. It only made a higher high two weeks ago, so it needs time to come back down and prove itself and form a little bottom, perhaps in the $55-$60 area. If it can hold over $60, that would be impressive.

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