A Rally in Stocks, But New Highs Continue to Contract
We're still on track to get overbought this week. Plus, we answer reader questions.
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The Market
Well, at least the Russell rallied late in the day! And so did the crypto stuff.
But away from that, breadth was flat on the NYSE. Upside volume chimed in at 41% with Nasdaq in much better shape with 73% of the volume on the upside.
Yet despite the rally in the indexes this week the number of stocks making new highs continues to contract. I could cite numbers to you but suffice it to say I think you can see it on the chart: new highs have been trending lower for more than a week now.
We are still set to get overbought at the end of the week, so with the Bank Index having been red for six straight days, we should not be surprised at all if banks have a rally day. Or the Utes which have barely been green in the last two weeks.
The Transports, at the low today had lost four percent from their high a week ago so they too might get a green day.
The bonds rallied again today so let me reiterate that I am still a fan of the bonds but I think they run into resistance up in this 94-95 area on the TLT. If you’re looking at yield it’s 4.1% on the Ten Year. Keep in mind we have the Employment number coming out on Friday.
The SOX finally got going (AMD is still trying to get going—I am still waiting, not so patiently!). I have my eye on that 5200 area as resistance.
The Investors Intelligence bulls popped to 62.9%. In July they were 64.2%. The bears are now at 16.1%; they were 14.9% in July. The bull/bear spread is 3.91. Typically over 4 and the market corrects.
I would end by noting that the VIX closed the day green. I don’t want to make a lot of it being green today but I do want to remind you that I think we get a pop in the VIX, likely next week. The DSI for the VIX fell to 11 today. The DSI for Nasdaq and the S&P are at 85.
New Ideas
McDonald’s MCD has spent almost two months milling around in the 290 area since their e coli news in October. Maybe it’s even forming a head and shoulders bottom. I like it as long as it stays over that 290-ish area.
Today’s Indicator
The Volume Indicator sits at 51%. It’s hard to believe the market has rallied as it has and upside volume over the last 30 trading days can’t lift to 55%. I thought it would have done so by now.
Q&A/Reader’s Feedback
If Moderna MRNA gets near 40 in the next few weeks (tax loss selling) then I’d probably buy it for a trade into the new year. But know that it is trade, the stock is in a downtrend with no base to speak of.
MGM Resorts MGM looks to me like a stock going nowhere. However if you are looking for a year end bottom fish, then as long as it stays over 35-36 I’d say why not? Maybe it fills that gap around 41 so the risk/reward isn’t bad.
Las Vegas Sands LVS is not my kind of chart because it is up so much already and it hasn’t spent much time digesting the latest rally. But it hasn’t done anything wrong either. I’d say use a stop under 53.
Kraft Heinz KHC has been bouncing off that lower line so any move into that 30-31 area is a buy since you know you are wrong if it breaks that lower line. Don’t fall in love because it’s mostly a stock in a downtrend but might be worth a trade.
Ceragon Networks CRNT has exploded, so it’s definitely not the type of chart I am drawn to. It’s also a low-priced stock, so the measured target won’t do us any good. I’d call it a hold unless/until a pattern shapes up or the stock breaks 3.80.
IBM IBM should run into some trouble at the old high around 235, but that W formation in November is –or should be—decent support. It’s tough for me to chase, but my guess is if we get a pullback in the market next week as I expect, the stock should then rally again after that.
