A Little Volatility in Time for an Adage to, Perhaps, Ring True
The indicators have started to shift. Let's look and then evaluate GRPN, FAST, IVZ, IWM, BAC, DLTR, GD, and JNJ.
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The Market
Well, we are certainly getting volatility, but in terms of the S&P, we are essentially where we opened the day after the Fed meeting, which was two weeks ago.
The indicators have shifted this week, so let me summarize that for you.
Breadth remains good. But the McClellan Summation Index is heading down and will require a net differential of +700 advancers minus decliners on the NYSE to turn back up so for now the majority of stocks are starting to curl over.
The market is no longer overbought but it is not oversold. I do not see a time yet that we can get oversold. I am going to digress for a minute here and note that tomorrow evening begins Rosh Hashona, the Jewish New Year. There is an old Wall Street adage that we should sell before Rosh Hashona and buy back before Yom Kippur, the Day of Atonement. Yom Kippur happens to be next weekend, October 12th.
Why this discussion? Because if breadth is red for the remainder of this week, then we would be oversold enough for a bounce right around Yom Kippur. I have lost the data on how often this works but my recollection is very often. Keep in mind that the Jewish holidays are not set every year in that they do not show up the same day(s) each year.
But back to the indicators. The Hi-Lo Indicator has turned down, and, today, Nasdaq saw an increase in stocks making new lows (the NYSE has not seen a similar increase).
The ten-day moving average of the put/call ratios are also too low and just now turning up. Today’s action did not see a rise in the put/call ratio in that it was .88. I do suspect we will see sentiment, which was complacent coming in this week, turn bearish quickly but it did not do so today.
There wasn’t a lot of selling in individual stocks today so it’s possible, even likely that the market tries to rally tomorrow but I would prefer some red breadth which is what gets the market to an oversold condition. I don’t think the volatility is done yet.
New Ideas
I was asked what the target on General Dynamics GD is. It has been 320. I would not want to see it trade back under 300, though.
A while back I was asked about Nutrien NTR so I wanted to follow up that it has crossed this short term downtrend line. It still has resistance all the way up but as long as it holds 48 it should start to improve.
Finally for the person who asked about Johnson and Johnson JNJ in early September, it has finally pulled back to support. Now I’d like to see it map out as I have drawn in blue. If it can do that, I’d probably like it on the next trip down to the 160 area.
Today’s Indicator
The McClellan Summation Index is discussed above.
Q&A/Reader’s Feedback
I am not a huge fan of Dollar Tree DLTR except that if they can resolve the Port Strike quickly this probably pops, maybe even enough to fill the gap but 75 is going to be tough.
Bank Of America BAC has spent the last two months going sideways. I would like to see it go sideways and not break under 38 for another few weeks. Then I would have more confidence that it can break out over 41.
I was asked about TNA, an etf to be long the Russell but it’s a 3x ETF. I always prefer the purest ETF so I will look at IWM IWM instead. I had said last week I thought IWM ought to bounce off that 215 area and I will stick with that, keeping in mind that as that line goes lower (as time goes on) the level for the bounce is lower. The best place for it to bounce is 212, about two weeks from now as that would have the line and the gap fill in the same spot.
Invesco IVZ should hold here and bounce but my guess is if we see a bounce from here we’ll see it fail. The stock has had a big run and it needs time to prove it wants to hold here. If it is still milling around this 17-ish area in a week or so then I would have more confidence that a bounce could be longer than a day or so.
Fastenal FAST has a decent chance at filling that gap around 74. I’d like to see it down there at 68-ish first.
Groupon GRPN is quite oversold in the near term so it ought to bounce. If it bounces and can’t get over 11 then I think it’s a short because the next trip down would likely break 9. So bounce now and if it can’t get over 11, it’s bearish.
