I Have Seen Some Wall Street Strategists Turn Less Cautious in Recent Days
The Market
As we edge closer to the intermediate-term overbought reading later this week I’d like to share some anecdotal observations with you.
First of all, two weeks ago folks seemed more bearish than they do today. Oh I can’t really show you anything statistically but it’s just how you see and hear folks talk about the market. They are much more comfortable beating up bears today than they were two weeks ago.
I have even seen some Wall Street strategists turn less cautious in recent days. Some have taken their calls for a retest off the table while others have lifted their views for the year.
Statistically we have the Daily Sentiment Index (DSI) back at 73 for the S&P. Readings over 80 tend to be "too bullish" so if by some chance we continue upward toward the end of the week with no down days (doubtful, but never say never) I believe this will be over 80.
As for the overbought reading, I promised I would alert you when the SOX reached an overbought reading, and It has. To complete the "overbought" reading the indicator would now have to turn back down.
This indicator is the daily change in the net differential of the 50 and 200 day moving average lines. As you can see readings over +2 have typically been peaks in the indicator.
Each of those peaks has been noted on the chart of the SOX below. Some resulted in sideways action and some in real declines. Only in the summer of 2016 (D) did we see one down day and that was that. It’s hard to see but even point E saw a fast 8-10% whack in the SOX. My best guess is we are likely to see the SOX do a big digestion. A short-term whack would probably improve the chart but at least for now this area of the market is into overbought territory and once the indicator turns down it will be complete.
I’d say we should watch the banks which have been lackluster for a few weeks. They really should have one more rally so if they can’t, it is a problem.
Aside from that breadth was fine again so there is no change on that score. I still think we are apt to see volatility pick up in the next week or two.
New Ideas
3D Systems (DDD) is trying to map out a small bottom. It needs to get up and over $14 so it can clear that recent spike high.
Today’s Indicator
The 30-day moving average of the advance/decline line will be overbought Thursday.
Q&A/Reader’s Feedback
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Amgen (AMGN:Nasdaq) looks like a big top to me. But it also has a ton of support at $180 so I’d watch for a failure to break under $180. A failure to break under $180 would signal the selling is drying up. Of course with such a bad chart it’s hard to say where it can go on the upside so for now I’d watch $180.
American International Group (AIG) looks like so many other charts. It has the potential for a head and shoulders bottom but finds itself stuck at resistance (the neckline) and can’t get through. If it can breakout the measured target is $50-$52 which coincidentally is where major resistance comes in.
Back in early January I noted that I thought JP Morgan (JPM) should rally to resistance in the $102 area which it has. But I was asked now what will it do? I honestly have no idea because while it hasn’t made a lower low and the higher high it tried last week was rejected I would say even if it rallies from here 106 is a tough spot for it again. Ideally the stock would spend several weeks trading between $100-$104 to form some sort of pattern that tells us. I’d lean toward some profit taking.
I think U.S. Steel (X) is a decent chart that should make toward $26-ish. And the stop would be close because under $21 and you know there is a lot more work to be done. In fact in the big picture there is a lot more work to be done but a rally to the mid $20s cannot be ruled out first.
