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We Can Rally Just a Bit More

Energy stocks have a lot of complacency in them.

The Market

I do not base my work on seasonality. There are many who use it and are quite successful doing so. For me, if positive or negative seasonality lines up with my indicators, then that’s great, let’s go with it. But I would not go against the indicators even if the seasonality says to do so.

I put this out there because my inbox is filled with folks telling me that the seasonals are so positive for this week. Well, at least through Wednesday. So I feel the need to share that with you because as you know I have been of the mind that the market gets intermediate term overbought around Thanksgiving, which turns out to be this coming Thursday.

There is no exact day I can point to, but rather it is a time frame. Notice the August overbought reading hung up there for nearly the entire month. Now notice that for the last two weeks this 30-day moving average of the advance/decline line has been hanging around up here. It simply means the market ought to lose upside momentum in the next few weeks.

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The number of stocks making new highs has not improved but the math behind the Hi-Lo Indicator says that despite it currently heading down for Nasdaq it could turn upward this week. That’s why I have been saying the window is open until the Thanksgiving timeframe. The chart is shown below.

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We have reviewed sentiment in full on Thursday evening but let me recap. The Investors Intelligence bulls are at 38%. The American Association of Individual Investors bulls are at 33%. The National Association of Active Investment Managers exposure is at 65. The one day reading of the equity put/call ratio from last week is likely in the process of getting unwound since it was so high.

However, the 21-day moving average of the put/call ratio for exchange-traded funds is low as is the 21-day moving average of the put/call ratio for the CBOE Volatility Index.

So why do I think we can rally just a bit more? A few reasons. First, because of that extreme put/call ratio last week. But also because I feel like last week’s chopfest got folks less optimistic than they were the prior week, and I’d like them to stop fretting so much. And if the market can rally a bit more the VIX can fall a bit more. It is currently just over 23 and the Daily Sentiment Index for it is at 25, the lowest since September. If we can get the VIX to fall a bit more, that DSI should become a teenager. As a reminder it was 11-12 in August. So we’re sort of in limbo here.

New Ideas

I feel as though I have become a broken record on the energy stocks but I really do feel there is a lot of complacency in them. It’s different than in early June when we had exuberance. Now we simply have complacency, and I expect them to come down. If SPDR S&P Oil & Gas Exploration & Production ETF can rally back to $155-$160, I’d be a seller there.

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Someone asked about Amazon (AMZN) - Get Free Report a few weeks ago, and I said I would sell the stock $105-$110. It never got there and has now retreated again. I think it should rally again. I’d love to see it near $90 to fill that gap first but that is not necessary. I’m watching this for a short-term trade upward.

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Today’s Indicator

The 30-day moving average of the advance/decline line is discussed above.

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.

General Motors (GM) - Get Free Report has had decent resistance at $42.50-$43 since the spring. Getting through there is not necessarily a breakout because there is still resistance all the way up, but if it can get up there and over it, then it turns the picture from a stock that is trying to base to one that has finally made a higher high and has a lot more potential.

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Marriott (MAR) - Get Free Report would have a mini breakout over $165 but it would run into the June high pretty quickly. If you want to give it a try then use a stop at Thursday’s low.

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My target for Schlumberger (SLB) - Get Free Report has been around $48-$50 and that has not changed. I think it is more likely to break $50 than rally to $60 in the next month or so.

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We Can Rally Just a Bit More

Energy stocks have a lot of complacency in them.