We're 'This Close' to Overbought

The Market

Can we rally one more time, or was that it and the market rolled over before getting fully overbought? I don’t know. What I do know is that we’re “this close” to being both short- term and intermediate-term overbought and sentiment got a little to excited midweek last week.

I would not be surprised if we rallied early this coming week. But it won’t change my view that we’re into overbought territory and we saw sentiment shift enough from too many bears to too much acceptance in the last week. That to me results in a choppy market going forward.

Can it result in a very negative market? If we manage to see the indicators roll over, then sure. For now the McClellan Summation Index is still rising. It needs another bad day of breadth to halt the rise and then likely another one to roll it over. The number of stocks making new lows has not really begun to rise either. For now, the New York Stock Exchange remains tepid at 20 and Nasdaq at 5.

All of that can change with one more whack, especially since we are into overbought territory now. It also means that if we do rally early in the week, it is unlikely to change my view that the month of May should see more volatility.

A few very short-term indicators say we could rally early in the week. First the put/call ratio jumped to 118% on Friday. The equity put/call ratio jumped to 82%. The problem is that the ten day moving average of the equity put/call ratio is now heading up from that 60% level which is typically not bullish for the market.

We also saw a great deal of selling on Friday with 90% of the volume on the downside. That too can lead to a short-term rally.

Now let’s look at the chart of the Semiconductor Index, SOX. We looked at this midweek last week, where I noted a break of the uptrend line at 1,650 should take it down near 1,600. It broke the uptrend line and now 1,600 looms ahead.

The chart that bothers me more than just the pure SOX chart is the ratio of the SOX to Nasdaq. The ratio has made a lower low vs. two weeks ago while the SOX has not. I tend to think the ratio leads. Notice that the ratio peaked in late December, but the SOX did not peak until mid January — and I use mid-January because that higher high in mid-February was by mere pennies.

The SOX should find some support to bounce from around 1,600, but if that ratio chart does not improve, we need to be cautious.

When it comes to the chart of small caps fund, the iShares Russell 2000 exchange-traded fund (IWM) I think $125 is the middle of nowhere. If it rallies to $130 this week I’d sell it. If it falls to $120 I’d look for a bounce.

New Ideas

I have been asked where I think NVIDIA (NVDA:Nasdaq) is buyable. Given what I think of the semis, you can probably figure out that I am not a fan. But if the stock comes down into that $265-$270 area, I would expect a bounce off that line. I just don’t know that it would be more than a trade.

Today’s Indicator

The new highs and new lows are interesting. The new highs have been contracting all week. Yet the new lows have not expanded much, even in the decline the last few days of the week. For now I’ll call this neutral.

Q&A/Reader’s Feedback

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I was asked about the chart of Hertz (HTZ) , which quite frankly is an ugly chart. But if you want to put in a stop, say around $3.40, you can try and bet that these lows hold.

I don’t know why Hertz looks so different than Avis (CAR:Nasdaq), but it does. I don’t much love either chart of Avis has some decent support around $11.

I have a hard time liking Raytheon Technologies (RTX) here, except that there is support around $60. I might find the chart interesting if it came down to test that spike low near $50, because that might make the chart more interesting and a better risk/reward.

I admit I am very intrigued with the chart of GreenSky (GSKY:Nadsaq), because it has formed a little –- very little — bottom and seems to want to hold over that $4 level for now. So as long as it can stay over that $4-ish area it gets the benefit of the doubt for me. Getting through $4.50 would be a plus.

Qualcomm (QCOM:Nasdaq) has the same problem so many stocks have: There is resistance overhead and they haven’t broken support. I will say this about QCOM: If it can hold over $72, I’d at least think it can bounce, because that’s the prior low from two weeks ago. Otherwise, it seems vulnerable to me.