What an odd market. Why so odd? Because we finally got off the mat this week and the Russell 2000 sat it out.
Think about this: It’s like the market refuses to have follow-through. Oil stocks rallied – although they really haven’t gone anywhere in a month – and Wednesday, they sat it out. Or even the banks – they held up all week only to be red Wednesday.
So what rallied? Mostly growth stocks and precious metals and some industrials – and the semis. This basically takes us back to where we were before the Russell 2000 started its improvement. So, no follow-through.
But breadth was good and the McClellan Summation Index ticked up. You need a magnifying glass to see it, though, and a down day for breadth will take it right back down, but it is a modest change and it is therefore welcome.
For the past seven trading days, breadth has been green. If it continues that way as we head into next week, it will make the market overbought by early next week. It really would have been better if we were oversold heading into the tariff news, because then I think even if the tariffs are not rolled back, the market would ignore it. But now it makes it harder to game.
I want to make one more point about what I am trying to do in this note each night in terms of stocks and groups: I am trying to show you what might be improving, what could be bottoming, what has the potential to become the next good group or stock. So, when I get asked about iShares Nasdaq Biotechnology Index (IBB:Nasdaq) or SPDR S&P Biotech (XBI:Nasdaq), both biotech exchange-traded funds, now I will say I am not terribly interested in them. I liked this chart of IBB back in October. There is an upside measured target around $120-$125. I am not interested in buying it up here. Yes, I know everyone is excited over biotechs, but they have run too much for me to love them up here. In fact, I’d probably be selling some just to book a few profits.
But when I show you a chart like Alcoa (AA) - Get Free Report, as I did Tuesday night, I don’t expect it to reward us the next day. I expect it to develop over the next several weeks or months. Folks are starting to talk about copper now, but look at Southern Copper (SCCO) - Get Free Report, which I also liked a month or so ago. I think that old high in this $41 area is going to give it some trouble, but if we’re lucky to see a pullback to that flat line around $38 to $39, I would gladly step to the plate again.
I am not a very good chaser. I am also not fond of buying what’s up already, just because everyone likes it now. I much prefer to find what is down and out and could possibly be what everyone is talking about in the future. It won’t always work out to our advantage (nothing is 100%), but that’s my style.
Sticking with the down and out theme, these are three charts we have looked at recently that are still down and out, and I think still have potential.
Baidu (BIDU:Nasdaq) continues to hold over this $110 area and if it can turn and rally, I do think it can eventually fill that gap overhead.
PayPal (PYPL:Nasdaq) continues to attempt a head-and-shoulders bottoming pattern.
Amazon (AMZN:Nasdaq) has been left for dead. No one likes it anymore. No one recommends it. Yet, as long as it holds this $1,725 area, I think it gets the benefit of the doubt.
The Volume Indicator is at 52%, so it is far from oversold.
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Since I am now a fan of gold and VanEck Vectors Gold Miners exchange-traded fund (GDX) - Get Free Report, I was asked about VanEck Vectors Junior Gold Miners ETF (GDXJ) - Get Free Report, which is the Junior Miners ETF. It’s got an interesting fan pattern it is working on, so if it can get up and over $40, it clears the third fan line. Think of the fan lines like you would strikes in baseball. The first fan line isn’t a big deal. The second one is a bigger deal. The third one and that’s that. So crossing the third fan line is bullish. Right now the only target I can measure though is back to the old high around $43.
Ford (F) - Get Free Report is definitely an improving chart. It has a funky head-and-shoulders bottom it’s working on, but it would still need to clear that $9.30 area to show the kind of improvement that gets folks excited. I think it gets the benefit of the doubt.
Back in October, I kept trying to bottom fish in Cyber-Ark (CYBR:Nasdaq) and that push down to a lower low stopped me out just before it embarked on that big rally. I would say that as long as it stays over $115 it ought to make its way toward $140.