We Are Nearing Some Sort of Rally

Maybe we rally early in the week and head back down later in the week or next week.

Author:
Helene Meisler
Publish date:
Sep 18, 2022 9:04 PM EDT

The Market

When we look at the various market indicators, it’s clear, in terms of timing (not necessarily price) that we are nearing some sort of rally. If I was writing this one week from today, it would be less murky in terms of exact timing.

Using my Oscillator, we are not terribly oversold. Remember, it is based on breadth, and at that, it is based on the 10-day moving average of breadth and for five of the last 10 days breadth has been negative. That means five days have had positive breadth. Long strings of negative breadth mean we are oversold. This is like your favorite baseball team having a record of 5-5 in the last 10 days, and they have won 2, lost 2, won 2, lost 2, etc. It’s been more up and down than trending.

Using the 30-day moving average of breadth (a more intermediate term indicator) we find that it is getting quite close to an oversold condition. The same method applies here: are we dropping a long string of negative numbers? (to signal an oversold condition). As we get closer to the end of the month (here again, if I was penning this a week from today the answer would be less murky), call it beginning near midweek next week, we begin to drop a long string of negative numbers.

The Volume Indicator is now down to 48.5%. This chart is shown here each Wednesday, but as you can see, it is on the verge of getting oversold.

The Hi-Lo Indicator sits around the mid-teens which is oversold. Sure it can get more oversold (we got to single digits in the spring) but when it gets under 0.19 we are into oversold territory. The chart is shown below.

On the sentiment front, you probably don’t need me to tell you how bearish folks are. The 10-day moving average of the put/call ratio has rolled over and Friday’s reading for the ratio for exchange-traded funds alone was 1.76, which is the highest since it stretched to the 1.90s several times in late June.

The Daily Sentiment Index for the S&P 500 sits at 11 and Nasdaq sits at 10. Clearly, it won’t take much to push those to single digits which would be extreme.

Also keep in mind the DSI for the Dollar Index got to 93 recently and the cross currencies went to single digits. The DSI for bonds is at 14 having reached 12 twice in the last week. These are not the sort of readings you get at the start of a move but as we get closer to the end of one.

The Fed meeting this week will clearly be the market mover so I went back and looked at the chart of the S&P using weekly plots instead of daily. Look at the June low and see how many ups and downs there were before we finally had a decent rally. So maybe we rally early in the week and head back down later in the week or next week. It just seems to me that even if we have one more move to the downside, it’s finally getting late on an intermediate term basis to be bearish now.

New Ideas

Here are some charts that I still like. It will be no surprise that they are banks and drugs.

Bank of America (BAC) is still holding up well. As long as it can hold over $32-$33 it gets the benefit of the doubt.

I am still in favor of bottom fishing Pfizer (PFE) here. If it breaks hard under this line then I know I am wrong so the risk/reward is good.

Johnson and Johnson (JNJ) finally moved last week, so it will be a little overbought and has resistance all the way up but that is looking like a decent low.

I would like to see Las Vegas Sands (LVS) do a bit more work under $40 but if it can ever get through that would be a nice breakout.

I am still not a fan of most tech but it is getting oversold too. Energy looks vulnerable.

Today’s Indicator

The Hi-Lo Indicator is discussed in full above.

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.

Peloton (PTON:Nasdaq) might be a candidate for base building because it has gone sideways since May, but I want to note that stocks like this may be candidates for tax loss selling as we head into year-end so I would shy away from it. However, I do post this chart by hand and if it trades under $5 I will put it in the discard pile, and that has a great track record for a stock to get a bounce. So, I’m a buyer if the stock breaks $5.