Pop, Slump and Dry Right Up
There's a pattern going on in this market among stocks and bonds — and to change it we need to break on through to the other side. Here's why it matters.
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The Market
As soon as everyone gets excited over the broadening out we stalled. But you know what? We’ve seen this several times before. We get one or two nice up days and then the next four to six days are a slog. Remember we looked at Home Depot HD last week with the chart showing just that?
Let’s delve into Home Depot further.
The zip up post the Fed meeting in December, when the stock went from $330 to $350 and then spent the next three weeks giving almost all of it back. There was another pop into early January with no follow through. You can see that pattern — and then there was last week. We saw the gap up and the give back where it came down lower than the gap it had left.
This time, though, it stabilized and Monday it came back to $360. Why is this important? Because HD now finds itself sitting right on support. While the chart is different, it’s the same situation as McDonald’s MCD, which we also reviewed recently.
These charts pop and slump but when they are on the verge of breaking support the selling manages to dry right up. That’s been the pattern. If that pattern changes, it matters.
See how McDonald’s keeps threatening to break $280 and yet all it does is sit there? If that pattern changes, it will matter.
It’s the same reason I keep harping about the uptrend line in the S&P 500. The setup is there for us to correct at least back to the line but so far all we do is mill around.
Next up are the bonds. The uptrend line held and yields bounced but they haven’t yet broken through to the other side. I submit that a breakthrough to the other side (over 4.40%) could give us a correction in stocks. If the bonds refuse to break like MCD, then we’ll be in the same place we have been.
In conjunction with the bonds being at an important resistance area, so too is the yen. If the USDJPY gets through 152 folks might get excited.
Finally we need to talk about gold and the metals. I have been bullish for a while on the SPDR Metals & Mining ETF XME. It is now approaching the first real resistance area so I can see a breather. I would very much like a breather because the DSI for gold is 88 (over 90 and that’s a problem) and copper is 80.
Recall a few weeks ago gold got ahead of itself but the DSI stalled right under 90, we pulled back, gave it some room to breathe and up we went again. My measured target is still around $220 on the SPDR Gold Shares GLD but let’s be cognizant that a breather when the DSI is this high is needed. For both XME and GLD.
New Ideas
Shopify SHOP is a formerly hot stock that no one ever talks about anymore. Probably because it has done nothing for four or five months. But you can see below it has a pattern of late of popping and pulling back gradually. This pullback could/should lead to another pop. I am wrong if it breaks under $75.
Today’s Indicator
The 30-day moving average of the advance/decline line is overbought.
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.
I was asked for a measured target on Alphabet (GOOGL). It measures to the $170-ish area.
I was asked if I still like Dow Inc. DOW because it had that little run when it broke out over $55 but has spent the last month sitting there, milling around. I am still a fan with a target in the mid-$60s. I do, however, want to see it stay over $55-56.
A few weeks ago I thought Mosaic MOS would rally to complete that small head-and-shoulders bottom. It hasn’t done a thing but go down and back up. Yet I still think it tries for that line above, in that $35 area.
