Oversold by Wednesday
The Market
For those who are tracking the "Helene Vacation Indicator," my next days off are still a few weeks away, sometime in May! Although I say that in jest, the market does seem go wild when I am gone. Longtime readers might recall that I was traveling during the May 2010 flash crash as well.
Before discussing the statistics and where the market is, let me say that when I talk about a potential bounce now, I do not see this as any sort of a lasting low. I believe there will be a better low out there in time.
The Fear and Greed Index did get down to 20 (with some intraday readings in the upper teens), so at least that is in the right place for a low. The put/call ratio late last week pushed to 113%, which is also a sign that we should bounce. The bloggers' weekly sentiment survey showed us bears at 58%, something we have not seen since the lows last June.
I might even note that the Nasdaq made a lower low today, and there were fewer new lows by a decent amount, 84 today vs. 93 on Friday. So that is a positive divergence.
Then there is the clear and obvious support at 4000 on the Nasdaq. And the Russell 2000 is now sitting at its 200-day moving average.
Finally, my notes say that we should become oversold Wednesday of this week. So if the market were to come down tomorrow, I would still look for a late-week lift as we head toward the holiday. On the Nasdaq Momentum Indicator below, you can see that if I take the Nasdaq down using a "what if" exercise over the next several days, the indicator goes up. The day it turns up is Wednesday.
On an intermediate-term basis, the McClellan Summation Index is still heading down. It will not take much to turn it upward, so that is not the issue. But the Nasdaq's indicator has crossed under the zero line for the first time since 2012, which does not speak of a great low. As you can see from the chart, those types of lows are typically tested. I have circled the 2011 low and labeled the 2012 low as points A and B so you can see what I mean.
In addition, when small-caps underperform, as they have done for the last month or so, the market is typically on shaky ground. Think of the S&P 500 as the generals and the small-caps as the soldiers. Soldiers, not the generals, do the fighting. So times when only the generals are working do not tend to support the market's health.
Our biggest concern should be that the market could work off the oversold reading by going sideways. You might recall that the biotechs have done that several times during their trip lower. The 1850 mark is obvious resistance on the S&P. That is where we broke down and where the 50-day moving average lines resides.
Wishing all who celebrate a Happy Passover!
Read Helene's latest column here.
New Ideas
Typically, when we see a decent low set up, there are ugly-looking charts that also appear as though they should be bought. I do not have such a list now.
One example of a stock potentially using up its oversold condition by going sideways is Wynn Resorts (WYNN:Nasdaq). You can see that it has not made a lower low from the whoosh last week (a bullish sign). But neither did it join the upside party today. If this chart now breaks down under the $205-ish area, that will start a new leg down, with a next target near $180 and $190.
The alternative is that WYNN gets itself back over $220. There are a lot of stocks with potential breakdowns like this, which were not able to rally today.
Today's Indicator
The 30-day moving average of the advance/decline line is a little bit oversold. The emphasis should be on "a little bit" and not on "oversold."
Q&A
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.
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I am very disappointed in the action in Pfizer (PFE) , which I really thought was due to be a decent stock for a change. Why does PFE always disappoint me? In any event, I think it has support in this $29-$29.50 area and therefore should bounce from here. But now I am inclined to expect that rallies will fail. In fact, if PFE can rally to $31-ish, you should consider it a gift to get out, as the chart will then look like the right shoulder of a head-and-shoulders top.
I have liked Diamond Offshore (DO) for so long that it is downright embarrassing to be this wrong. Yet the stock continues to look as if it wants to bottom. And right now it has the potential for a head-and-shoulders bottom to form. I would like to see it go over that downtrend line at $50, since that has been the lid on the stock for the last year. If it falls under $45, I might even advise you to give up on it.
Quite some time ago we looked at Campbell Soup (CPB) and I liked that head-and-shoulders bottom in the chart. It measures to $48. Yet because that move up out of that base has been so lethargic, I am not sure I trust it. Longer term, the chart is still fine. But in the next month or so, I think it is more apt to come down and test that base in the low $40s than it is to tag the upside target. If you are looking to buy it, lean toward waiting.
