Market Can't Get Out of Its Own Way
The Market
Now that’s what an overbought market feels like. Like it can’t get out of its own way.
Breadth was positive but not by much. Net volume was flat even when the market was up. Again, that is the overbought condition at work. A pullback would be helpful.
Now let’s move to bonds. The (TLT) (iShares 20+ Year Treasury Bond ETF) got right to that $91 area and backed off. I would say taking some profits here is not a bad idea. I don’t yet think everyone is on board the "lower rates" train but I do think we’ve had a good run and we have resistance here. I suspect we back off and rally bonds again.
Then there are the Utes, which are up 10% in two weeks. They tell me that’s okay because they are now an AI play (insert eye roll emoji here). The Utes have not done anything wrong and I am still bullish on them but they are stretched and at resistance on the Utilities Select Sector SPDR Fund (XLU) chart.
Lastly, I have been fairly adamant that I didn’t like energy when the Energy Select Sector SPDR Fund (XLE) got to $98 a month ago. Well, I believe I said I was neutral and no longer bullish. I do, however, like to watch the ratio of VanEck Vectors Oil Services ETF (OIH) , the higher beta energy, to XLE (lower, slower energy). When OIH is lagging, energy stocks tend to roll over shortly thereafter. The inverse is true: When OIH is outperforming, energy typically catches a bid not long after.
Since the calendar turned to May OIH has been outperforming XLE. I’m still not ready to buy energy stocks again but I do think if this ratio persists in heading up I will have to start looking at energy stocks again.
New Ideas
We looked at Costco (COST) with a positive eye last week and it has had one heckuva run since then. This is a reminder that my initial target was to fill that earnings gap, which is quite close now. I would look at taking something off the table up there on a trading basis.
I was asked if I think Lockheed Martin (LMT) will ever get over $470, something I have been waiting on for a very long time. Now is the chance since it pulled back to test the line. But as long as it stays over $455-ish I give it a chance.
Today’s Indicator
The McClellan Summation Index is heading upward.
Q&A/Reader’s Feedback
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I want to like DraftKings (DKNG) because, like so many stocks, it has gone sideways since February (which should mean if it can rally there ought to be buying interest), but I see that potential head-and-shoulders top. Let’s call it buyable $42-43 with a stop under $41-ish because if it can’t rally and opts to break last week’s low, that h/s top is a problem.
Ulta Beauty (ULTA) has barely had an uptick since its gap down. It really is oversold, though. If the stock came down to that lower line ($370-380) it would meet the measured target from the island top it left behind. If you are into bottom fishing without a pattern that’s where I’d look at it.
We looked at Alcoa (AA) a few weeks ago and I think I drew in the same line. That’s a base and I believe this is likely to cross over the resistance line.
