Amid All the Hoopla, A Loss of Upside Momentum
The Russell and Nasdaq actually closed lower on Friday than they did on Monday. Will this week’s inflation statistics work off the froth? Plus a look at Schlumberger, Ford and a bunch more.
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The Market
My view hasn’t changed. The market remains short-term overbought and needs to work that off.
Despite all the hoopla about last week’s market let me point out that breadth was actually negative on three of those days. The Russell 2000 closed lower on Friday than it did on Monday, not by much, but lower it was. And the Nasdaq also closed a fraction lower on Friday than it did on Monday.
That is how an overbought condition takes hold. It’s all very minor stuff but an overbought condition is a loss of upside momentum and that’s what we had last week. In fact there was enough of that chop last week to get the McClellan Summation Index for the Nasdaq, where I use volume, to stall out.
We entered last week with that indicator needing a net differential of net negative 3.3 billion shares to halt the rise upward. We exited the week with that number at a net negative 300 million shares. That’s quite a drop for a market that was up for the week. But as I noted it was up Monday but the remainder of the week was chop.
To sum it up we have had — at least through Thursday — breadth leading the way to the upside. That is bullish. Friday the S&P was up and breadth was mildly negative. I consider that part of the overbought condition but if Friday’s action turns into a trend and therefore turns the indicators lower, then it will no longer be bullish.
I would still love to see the Russell 2000’s potential head-and-shoulders top roll over so that we can get sentiment to back off the froth that showed back up last week. Maybe this week’s inflation statistics will help with that.
And then there is the VIX with the DSI still at 10. With eight straight down days I am in favor of a day or two on the upside.
New Ideas
Last week I noted that I might warm back up to the energy trade. I would like to see Schlumberger SLB pull back into that $47-48 area to buy with a stop under $47-ish.
Honeywell HON had a nice week last week but it has resistance in that $205 area so I would not chase it. I would buy dips into that $198-200 area, preferable a gradual pullback not a sharp one!
Today’s Indicator
The new highs are just not expanding.
Q&A/Reader’s Feedback
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Ball Corp. BALL is a stock in an uptrend. It has an unfulfilled measured target around $75-ish so I can’t get excited over it up here but as long as it holds that uptrend line I would call the stock a hold.
Energy Transfer L.P. ET with its big yield is always a draw for folks. With the stock at its highs, I call it a hold as long as it doesn’t break that uptrend line but I am not a buyer of a stock with a pattern like that. If it pulled back to the uptrend line then the risk/reward is much better.
Fidelity National Information Services FIS is a good chart with an unfulfilled measured target in the $79-81 area. The only measure of caution I would note is that lately stocks that gap up tend to have very little follow through. Rather they tend to chop or come back down to close the gap.
I recommended Ford F earlier this year and it had a nice run but has been rather crummy for months now. I do not like the head-and-shoulders top that has developed but if the stock can hold over $11.50-ish then it’s probably due for an oversold bounce.
Estee Lauder EL is one of those charts that hasn’t gone anywhere in months and doesn’t look to me like that will change anytime soon. If you want to buy it for a trade to the $140-145 area I wouldn’t argue but I’d use a stop under $125 because breaking that and there’s a measured target back near the November low.
Viatris VTRS has a head-and-shoulders top in place that if that breaks it would measure back to the November lows. If the market was oversold I’d say, sure take a shot here since the risk/reward would be great (you know you’re wrong if you break that line), but we’re not oversold. If the stock hasn’t broken by the time we relieve the overbought condition, then the risk/reward would be much better.
