Delta, Banks, and Industrials Flash Warning Signs as Investors Question Market Strength
Several key sectors broke higher only to finish near session lows, creating potential false breakouts that traders are now watching closely for signs of a reversal.
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What a pathetic excuse for a rally. I truly hate when the setup is there, and the market thumbs its nose and says, oh, you think the others can continue their rally? I’ll show you, come on, semis, show us what you’ve got! And even within the semis, it was good, not great.
But first, oil flops, and what do the Transports, which have been grinding higher for weeks now, do? They close red.
Look at the chart of Delta (DAL), which barely managed to stay green on the day, closing well off the high (5% off the high) and on the low of the day, even though it broke out to a new high.
If you squint hard, you can see it did the same thing in late May, crossing over the green line, only to close near the low of the day. Now that was a better breakout because it was emerging from a three-month sideways move, and this time it’s just a few weeks.
But I would put charts like this on my radar to monitor if these were false breakouts or just an intraday give back. Trading back under 82 would be concerning. Gapping under 82 would be bearish.
But you see, Delta is not alone. The banks, like the Transports, closed in the red and on the low of the day. The Industrials (XLI) gapped up, clearing all the prior highs, and while it still closed well up on the day, it closed smack on the low of the day. Bulls do not want to see this gap under 176, leaving an island overhead.
Those are the charts. The statistics tell the story. Breadth was up 300 issues on Monday. That was it. Up volume was 52% on the NYSE. As a reminder, the S&P was up well over 100 points on the day, so net breadth was pathetic. Even the number of stocks making new highs on the NYSE couldn’t even match Friday’s reading.
The good news is that it seems everyone could see how crummy breadth was. The put/call ratio, which had fallen to .76 on Friday, ratcheted right back up to .88 on Monday. That’s still in the neutral zone, but it tells me there was not a rush to buy calls like there was on Friday.
The DSI for Nasdaq notched up to 80. The S&P is at 79. So, for the time being, they are not in danger of being frothy. Another day or two on the upside and they might be, but unless the market skyrockets on Tuesday, I doubt these readings will be in the mid 80s at the end of Tuesday’s trading.
It wouldn’t surprise me one bit if we saw the market back off on Tuesday, but we are not yet overbought. It still feels as though we’d see them rally one more time if they back off. Heck, Nasdaq’s Overbought/Oversold Oscillator is still under the zero line.
