Why I'm Watching for Bulls
Let's look at the rally, this key indicator, the bonds, banks, and transports, and why sentiment is so important.
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The Market
And on the sixth day, we rallied!
It was better than yesterday, but it wasn’t anything to write home about. Let me note, however, that the McClellan Summation Index needs a net differential of 1,000 advancers minus decliners on the New York Stock Exchange to turn back up. That means the best thing this market can do is have the indexes chop about tomorrow, making no progress, while breadth is positive. The chart is shown below.
To go back to the theme I have discussed here for the last few weeks and again last evening, the three-legged stool of market worries from September continues to see interest rates down, oil lower and the dollar lower. At some point, the market should care.
I’m still focused on the short-term downtrend line for bond fund TLT. It has to get over $86 for this move to see folks cover their shorts.
Oh, I know, there are the transports, which have been terrible. But as awful as they are, they are oversold and should rally.
And, yes, there are the awful banks. They too are oversold, although I’m not sure how much they can rally, at least they should stop going down and have a rest from the decline of the last week or so.
The key to watch is how fast the folks who gave up their bullishness in the last few days jump right back into the bullish camp. My guess is they jump quickly.
New Ideas
I was asked what groups I thought would rally into year-end and which ones would go down. I have no idea into year-end, since there will be a lot of jockeying around with earnings in the next few weeks and there are so few bases out there. And many of the tops are meeting or close to meeting their downside targets.
I do, however, think some of the staples are improving. We’ve looked at Pepsi PEP recently, with a more positive eye and I still think it is improving. There is no base to speak of, but after that big flush, it has spent the last three weeks finding buyers when it comes down.
Today’s Indicator
The McClellan Summation Index is discussed 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.
Aflac's Ducks in a Row? Looking at Aflac AFL on a longer-term chart, we see there is resistance at that upper line. But let’s focus on the shorter-term chart. The base it broke out of in August measured to around $82 and that’s where it got to. For now the chart has done nothing wrong, because it has made higher-highs and higher-lows, but it has met its measured target so I would be inclined to take something off the table.
If you are looking to buy, then breaking that uptrend line at around $76 would be a sign the stock is likely then to go into a trading range between $72 and $75-$76. In an uptrending market buying the pullback to the line is a good option. In a market where the winners are few and far between, it runs a higher risk of being a stock folks can’t wait to take profits in. My inclination is to take something off the table.
Needs Restoration: RH RH is hanging by a thread. It has decent support here but notice that before it has rallied in the past it has built a small base before launching a proper rally. So if it is to be OK to buy it should rally and then retest. Right now you’re guessing that buyers will show up here again. I suppose the risk/reward would say you would know you’re dead wrong under approximately $225.
MCK's Line: McKesson MCK has an upside measured target around $470 so it has gotten into that area. I would probably buy it if it pulled back to that uptrend line around $440.
United Rentals' Bottom Line: United Rentals URI has a measured target around $390-$400 from that top it broke down from. In this case I suspect it comes down to touch that line.
Unsure About CSX: CSX CSX is hanging by a thread, too, so it is a little short-term oversold. I have had very little success catching falling knives in this market so I would not bottom fish it. It’s hard to short a stock that is down nearly 10% in a few days as well.
