The Market
Today was like five trading days compressed into one session. Let me give you the short-term positives, because there were plenty of them.
First of all, the CBOE Volatility Index (VIX) gapped up over 16, so it got jumpy. My preference would have been for it to get jumpy over the course of several days, but it did that on the open.
Next up, the S&P 500 went splat under 2,050, giving us the whoosh I wanted, and there were fewer stocks making new lows on that whoosh. Another short-term positive.
The equity put/call ratio was 78%. Holy smoke! Why is that so eye- opening? Because individual stocks, namely in the Russell 2000, were the leaders on the turnaround. They turned around in the morning (not late in the day), so it doesn't make a lot of sense that the ratio was so high, but it was. It was the highest reading since the October lows. Granted during the October lows, we had several days with high equity put/call ratios, one even at 91%. But no matter how we look at this, it goes in the short-term bullish list.
Then there was the aforementioned outperformance by the Russell 2000. It refused to make a lower low in the morning, despite the lower low in the S&P, and it led the turnaround on the upside. That in turn helped the market's breadth, which was quite positive on the day.
Why would I have preferred this to take place over the course of several trading days? Because time gives the indicators and the charts a chance to shape up. One-day whooshes on the second down day in a row don't do that. Therefore, the McClelllan Summation Index (shown below) is still pointing down. Sure, it will only take a net differential of +1,200 advancers-minus-decliners to get it to halt its slide, but we haven't had a +1,200 or greater day on the a/d since Oct. 31. Thus, we'd need an awful lot of follow-through to get this in gear quickly.
This also doesn't give the moving average lines of the put/call ratio time to get in position to peak and turn down. Finally, it doesn't give the Hi-Lo Indicator the time to get low and reverse.
I like the short-term reversal and indicators, and I would prefer if we hadn't zoomed upward from here, because my preference is to give the indicators some time to set up better. The good news is that at least we're just about oversold in the short term. I think 2,065 will be key on the upside for the S&P, and something solidly over 1,190 for the Russell. Follow-through for the small-caps is probably more important.
New Ideas
I will say I don't love the chart of Alibaba (BABA), because I prefer something a bit more rounded under. However, when we looked at this stock several weeks ago at near $115, I drew in these channel lines and said the only place BABA looked buyable to me was near $100, which is exactly the area it bounced from today. If BABA can get up above that $110-$112 area, cross the downtrend line and clear the previous highs, then it will change the chart to positive. Please note there are several channel lines on charts now, and the key is follow-through.
Another chart with a channel line is Google (GOOGL), which I thought might have improved on Friday, only to blow me away with a massive down day. But the channel stayed intact. Once again, a move up and above the top of the channel is key. Reversals need follow-throughs.
Finally, for those who keep asking about the oils, I would point out that Apache (APA) bounced off $56 today, which is a long-term measured target. The key is follow-though. It will still need to build a base, as I discussed last evening with the Baker Hughes (BHI) chart from 1998, but it did bounce from its measured target.
Today's IndicatorThe McClellan Summation Index is discussed above.
Q&AHelene 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.That is a serious breakdown from a top in iShares JPMorgan USD Emerging Markets Bond ETF (EMB), an ETF to be long emerging market bonds. While today's chart looks a bit capitulatory, I'd say if this fails to recapture $112 and hold it, then the downside target is in the $109-$110 area. I am not a fan of catching this falling knife.
I am not a fan of the McDonald's (MCD) chart, but I did work there as a teenager (when minimum wage was $1.85 per hour). However, I do think that somewhere between $85 and $90, the stock will try and hold the first time down. The key to me will be if there is any progress on a rally thereafter. Let me explain that if MCD goes on to trade between $85 and $95 for the next several months, it will begin to look like a base has formed. For now, my guess is that the lower band holds. I'd check back in a month or so, to see if the chart has changed.
For now the chart of iShares iBoxx $ Investment Grade Corporate Bond ETF (LQD) looks neutral to me, as if that $117.50-$118 area will hold on the downside. I suspect that the $120 area is the upper limit for now. I would become concerned about the chart, should that uptrend line break, because it would signal that rallies should be sold.
