The Long and Short of It
The Market
And yet another dull day in the market. I would say we got an either/or market, but it felt more like no one really cared.
Since last week there has been no selling in the market, but the buying seems to be somewhat hesitant as well, so we’re stuck with an oversold bounce like Monday and then very little follow-through.
The relevant indicators from my vantage point are in sentiment. The daily sentiment index for Nasdaq is now 85. That’s a yellow light for me. Over 90 and we’re talking a red light. A backing off for a few days will probably relieve that back down toward 80 giving a bit more room to run into the end of the quarter.
Couple that Nasdaq DSI reading with the Volatility Index now back at 15 for its DSI. It’s a similar story here: This is a yellow light, meaning expect a bout of volatility and if it gets to single digits it becomes a red light, meaning there is no doubt in my mind we will get some volatility.
Then there is the Investors Intelligence readings. I am somewhat surprised the bulls ticked up (now 56.5%), but more so the bears are at 15.8%, which is the lowest reading since the first quarter of 2018. Point A on the chart of the S&P 500 was the low reading for that cycle when bears were at 12.2%. You can see two weeks later we had Volmageddon (the various VIX products imploded).
In mid-March the bears got complacent again. That’s Point B on the chart. Point B turned out to be the move that gave us the retest of the February low.
I will note once again that I think we should rally into early July, because we won’t be overbought (short term) until then. A pullback in the next few days ought to set that up. But thus far this week’s oversold rally has been quite lethargic.
Finally, a word about the utes. A few weeks ago when Utilities Select Sector SPDR Fund (XLU) was at $64, I warmed up to the utes. They had a little run (very little) and have now swooned to a lower low. That is not what I expected. I do expect that support around $62-$63 will hold, but I was clearly wrong to think they could do more than an oversold bounce.
New Ideas
I have been asked from time to time about shorting and you might have noticed I tend to shy away from it. Let me show you some charts so you can understand why I shy away from it. If and when shorts start working, I’ll be happy to do so, but these stocks would be the first real test and thus far they didn’t give us much on the breakdown.
Look at Deere (DE) . We did look at it with a bearish eye a few weeks ago, but that breakdown lasted just about a week. That’s it. And now it is right back to the breakdown area. Conventional wisdom says it should be shorted/sold here with a stop over around $350.
Now look at Under Armour (UAA) . Isn’t that similar? Here the breakdown lasted one week and is right back where it broke down from. Again, conventional wisdom would say this is where you short with a stop over $21.50.
Yet a stock like Disney (DIS) did breakdown in May, rallied back to resistance and came back down. I’m not sure a move from $180 to $172 is a great short when it occurs over three or four weeks, but I look at this chart (as I have for two weeks now) and perhaps because I have been conditioned that all these stocks don’t really break, this stock should rally.
Today’s Indicator
The Volume Indicator is back at 50%, having come off the overbought condition from a few weeks ago. I’d like to see it down in the mid- to upper-$40s to say it is oversold, but it is no longer overbought.
Q&A/Reader’s Feedback
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If you want to buy Upstart Holdings (UPST:Nasdaq) this is the place where the risk/reward is quite good. Under that line or those recent twin lows and you know you are wrong, otherwise looks like a pullback that is buyable.
I really thought Sunrun (RUN:Nasdaq) would run into resistance at or near $50 and all it did was stall for a few days I still don’t know what to do with it, because it has resistance literally the whole way up, but at least it is eating through the resistance.
The Direxion Daily Financial Bull 3x Shares ETF (FAS) for the financials looks like a top. But that move down to $95 met its downside measured target. So, sure it probably runs into resistance at $110, but it ought to begin to back and fill. So, yes, a back off from $110, but with the target fulfilled, I expect choppiness between $95-$110 now.
About a month ago I was asked about C3.ai Inc (AI) and I drew in pretty much the pattern that has developed. It looks to me as if it is trying to carve out a head-and- shoulders bottom and I will know I am wrong if we trade back up the lows from last week.
