Sleepy Stocks

The Market

Friday was the first day stocks felt a bit tired. You might have noticed that energy and the banks, the two groups I thought were the most oversold last week, got right to those resistance areas and could go no further.

It was also the first time the S&P 500 had gone five-straight green days since August, and the first time the Russell has gone five-straight green days since May. The Russell hasn’t gone to six since April.

It has been my contention that we should rally from this oversold/too bearish condition a week ago and once back to an overbought condition and folks feel comfortable with the market again, we should swing back down. Do not take this as bullish or bearish — I’m just talking swings.

I have had my eyes on that period in September and October as a template. The McClellan Summation Index peaked in August and did not participate in that late August fling that peaked in early September. But then after a decent whack in September we got oversold and sentiment was pretty bearish we had a terrific rally into early October. Sound familiar?

And it was a good rally. Breadth was terrific, new highs were increasing and considering most stocks had been heading down (correcting) since earlier in the summer, they were ripe for a rally. I cannot even remember what caused the market to roll back over in early/mid October (maybe it was pre-election jitters? Maybe it was earnings?) but we did roll over, forming a “W” in the market.

Look at my own Overbought/Oversold Oscillator with the S&P on this chart. You can see the swing from oversold in September to overbought in early October and back down to oversold in late October (green box). You can see last week’s oversold condition on the chart. It is my view that by the end of this week that Oscillator will be back to an overbought condition.

Take a look at the market now. The Summation Index peaked in early December, so most stocks have been correcting for two months. It did not participate in the early January fling (similar to late August before the September correction). Breadth was good last week. The new highs increased (but are still well off their prior peaks) and sentiment has done a major about face.

Recall last week my Saturday Twitter poll showed a lopsided leaning toward “down” with a spread of 15 points favoring the “downs” (as a reminder the question I ask is what you think the next 100 point move in the S&P will be). So we know sentiment was bearish last week.

On Thursday, I noted that I had finally felt a shift in sentiment for the week and lo and behold, this weekend’s Twitter poll shows the “ups” in favor by 21 points. Would it surprise you to know that the last time the spread was that wide to the upside was that early October high in the market?

Then there is the Daily Sentiment Index (DSI), which chimed in for Nasdaq at 91 on Friday. The Volatility Index is still at 15. I can see us choppy to down and then one more move up this week before a rollover, but my general view now is sometime in the next two weeks we’re likely to have another shakeout.

New Ideas

I have had several questions on Amazon (AMZN:Nasdaq). so let me address that chart today. I think with a bit of work in this general area the stock should be OK again. I would turn sour on it in the near term if it traded back under $3,250 because then I would see it back in the trading range.

I want to follow up on Boeing (BA) , which I was asked about a few weeks ago. It has crossed the downtrend line for the first time in months. I would love to see a dip down near $200, which would retest the line and be buyable and help it start eating through resistance.

Now that Ctrip (TCOM:Nasdaq) finally moved last week, I was asked to update the chart, which is still below the breakout that would come around $37-$38. This is a longer term name I have liked and still like even though it has been frustratingly sideways. I would love it if it mapped in as I have drawn in blue.

I was also asked to follow up on Zoom Video (ZM:Nasdaq), which finally decided to rally on Friday. The resistance at $420-$425 is the next big hurdle. Once through there it would complete the head-and-shoulders bottom that would measure up into that area where it broke down from in late November, and so I’d say a gap fill is still my target, and that is around $470-$475. What I don’t want to see is a move right back under $400.

Today’s Indicator

The new highs are still fewer than they were at the January high, which is a short term negative divergence.

Q&A/Reader’s Feedback

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IAA (IAA) will run into resistance near that old high, which is the underside of the broken uptrend line around $66. That’s also the neighborhood that little bottom that broke out last week measures to so on a trading basis, if it got up there I’d be a profit-taker.

In the near term, EWZ (EWZ) , an exchange-traded fund for Brazil, has resistance $36-$38. If it can come back down to test $34 and hold then it would look like a “W” and would seem to have done enough work to rally well again. A trip to $34 would be helpful. A trip to $34-ish that breaks would be bearish.

Ocean Power Technologies (OPTT:Nasdaq) has a definitive pattern to it. Spike, pullback to the line and spike again. That means a pullback to $3.50-$4 should be buyable. And you would know if you are wrong quickly because it would break that line if it is changing the pattern.

I feel like the current chart of Tesla (TSLA:Nasdaq) is a smaller version of what we saw in September to November. Back then it had a giant sideways move and I even recall I was asked about it then and said I know it looks toppy, but it’s Tesla, so it should be a buy near $400. Right now all I see is a trading range between $900 and $750. A breakout over $900 would measure to $1,000 (so not that far). The stock feels very indecisive here.

Ryman Hospitality (RHP) met its upside target of $70 and is now consolidating. For now the upside looks like $75-$80 to me.

Keep in mind that this is a real estate investment trust, and about a month or so ago I highlighted iShares U.S. Real Estate fund (IYR) as a good long-term chart. With an upside object in the $93-$95 area.