All of a sudden, folks have discovered there is a lot not to like in this market. As long as the S&P 500 was rising every day, thanks to the heavily weighted stocks in the index, folks were pleased to be complacent. Since mid-July, this rise had masked the underlying weakness in the majority of stocks.
I highlighted that with the McClellan Summation Index, which began to head down nearly two months ago. I highlighted the complacency with the various put/call ratios and a few weeks ago we finally saw the Investor’s Intelligence bulls top 60%, which seems to have been the icing on the cake. Let me report all of those indicators are still problematic.
In the last six weeks, we’ve seen some pattern changes in the market. First, we saw in mid-August Nasdaq enjoy its first string of three consecutive red days since March. Then, last week, we saw that again. Then we saw the Invesco QQQ (QQQ:Nasdaq) channel that had been in place since April. Finally, in the last two weeks we have seen consecutive down weeks for the S&P, something we have not seen since March. All of these are underlying changes, meaning there has been something that changed from the pattern (uptrend) of the market since the lows.
That is the big picture and something to keep in mind. Is it just a correction or something more? Well, heck, in March we saw the S&P lose 30% in three weeks. Is that a bear market or is that a correction? Whatever, it is it’s worth paying attention to.
But now, I want to throw a monkey wrench into this scenario. There is going to be a lot of nuance here. Let me be clear that I don’t think sentiment has shifted enough in the market; I think it will eventually shift more. I think we will eventually see much higher put/call ratios. I think we will see the Investor’s Intelligence bulls slip under 50%. I think we’ll see the he National Association of Active Investment Managers Exposure Index number go from the current reading of just over 60% to under 50%. But I don’t think we do that in a straight line.
So let’s talk about this coming week. My own Oscillator will get oversold on Friday (a decline early this week would cement that). Nasdaq’s Momentum Indicator, which we don’t talk about very often anymore gets oversold on Wednesday, which is the day the Fed opines.
When I plug in lower closes for Nasdaq for the next week, no matter what I do, this indicator turns up on Wednesday. That’s what makes it oversold midweek.
Friday we had a minor lower low in Nasdaq and there was no expansion in stocks making new lows. The 10-day moving average of new lows is still rising, so this is just a short-term consideration right now. Should the market break lower Monday or Tuesday, I think it sets up for an oversold rally midweek.
I still think it is too soon for the rest of the indicators to line up, but in the short term, we need to be aware of being too bearish, as we head into midweek this week, especially if the market is down in the early part of the week.
Several of you have been looking for a place to get long Pfizer (PFE) - Get Free Report. It seems to me this $35-$36 is a decent risk vs. reward, because if it tanks under $35 in a meaningful way, you know you’re wrong.
American Express (AXP) - Get Free Report is a name I have liked since July, and it has done well since then. But last week’s pull back looks like another opportunity, as long as it stays over that $100 area. In fact I’d love it to drop toward $100 to make it even better.
The new lows are discussed above.
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Alpha Pro Tech (APT:Amex) has halved since early August. It’s probably got more work to do sideways — just look how long it spent going sideways this spring, before more than doubling — but I think it’s worth another look again down here. Unfortunately, the stop is quite far away at under $10.
I do not like the chart of Chewy (CHWY) - Get Free Report, but I would at least look for it to bounce off that $50 level, since if it does it on Monday, it would be the third straight red day and a move to some support.
I am not a fan of technology stocks right now, as they have had their day in the sun for the time being. Lam Research (LRCX:Nasdaq) will fill a gap at $290 and has a decent amount of support at $280. It is also getting very oversold, since it has been red for over a week now. So a bounce should be in the offing this week. If you are lucky enough to get a price of $320, I’d be a seller there.
I was asked to follow up on Uber (UBER) - Get Free Report, which I liked a few months ago. It is nearing some resistance in the $37-$38 area, so I’m not inclined to chase it, even though it hasn’t done anything wrong. If you’re interested in a ride hailing stock, why not look at Lyft (LYFT:Nasdaq), which is “saucering” under and showing signs of improvement. If it can cross that downtrend line it improves even more.