One of the Crummiest Oversold Rallies

Typically, when both the short- and intermediate-term indicators are oversold at the same time, as was the case just over a week ago, we would get a much better rally.

Author:
Helene Meisler
Publish date:
Mar 26, 2023 4:56 PM EDT

Comments

The Market

Let’s be honest. These past two weeks have to be one of the crummiest oversold rallies we’ve seen. Oh sure, Nasdaq has been super charged by a handful of stocks and has dragged the S&P 500 along with it thanks to that same handful of stocks. But overall? Maybe I was too generous when I gave the rally a B earlier this week.

I am not sure Friday changed very much in terms of the indicators. I continue to see the developing theme of ‘recession’ in the charts as defensive names like food and soap lift while the economically sensitive industrials drop.

Typically when both the short and intermediate term are oversold at the same time, as was the case just over a week ago, we will get a much better rally. Yes, even in 2008 we got a better rally than this. Even in 2000-2001 we got better rallies than this. Typically, I like it when both the short and intermediate term are oversold (or overbought) at the same time. It makes the risk/reward better for entries and exits. That’s why I find the recent rally so underwhelming. It should have been better. I don’t like to rationalize or make excuses for the market, but perhaps this is one of those times that the handful of big cap tech stocks just distorted everything.

In the meantime, the number of stocks making new lows has not yet expanded beyond the peak reading from two weeks ago. It’s a small positive divergence because the Russell 2000 made a lower low but the S&P and Nasdaq are still so far away from doing so.

This leaves us in the same place we have been. Still oversold on an intermediate term basis. On a shorter term basis, not as much (we have rallied even though it’s been crummy).

The three charts that caught my eye from Friday’s trading that fall onto the positive side of the ledger was that they finally sold their beloved semiconductors. This is good because hiding out in one group is never a good thing for markets. And they reversed the banks. Stabilizing the banks is also a good thing. Finally the Utes managed a terrific rally. The negative side is that breadth, despite being green on Friday, is still lackluster. The Transports continue to lag as well. But the one chart that I am going to focus on is the regional banks (KRE) relative to the Bank Index (contains all banks, money center and regionals). Notice that it made a low two weeks ago (when we began to get oversold). But more than that, it has made a higher low and (it’s hard to tell) it’s exactly where it began the month on March 1.

This ratio has been heading lower since October and has been trying to bottom since January. What we don’t want, despite everyone’s love for tech, is a market that is only loving on tech and discarding banks. Because that kind of market is a recipe (once overbought again) for a market that breaks down easily.

New Ideas

Now that Amgen (AMGN) has finally gotten itself going, I want to reiterate that I think Abbott Labs (ABT) is trying to bottom. There is a decent amount of resistance at $100, but if it can get up and over that, it starts to eat through it which is the first step.

Today’s Indicator

Nasdaq’s Hi-Lo Indicator is trying to turn upward. Again, it is in an odd place because Nasdaq itself has already rallied so much.

Q&A/Reader’s Feedback

Helene 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.

Now that Amgen has moved, I am asked about Gilead (GILD) . I think it is a very different chart and it can/should rally but I’m just not sure how far it can rally. I think mid $80s is the best it can do right now.

Insert gild here.

NAPCO Security Technologies (NSSC) is a thinly traded stock that has been on a tear. It has a measured target in this $36-$38 area, so I’d be inclined to take some profits and then use a trailing stop on the rest.