Caught Between Oversold and Complacency
As we finish out the summer, what we really need is a whoosh lower to clean out the weak hands and set the market up for another leg higher. But can we get it?
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The Market
This will sound like a repeat of last week –or was it the week before that? Or the week before that?!—but we remain caught in a cycle where we are short-term oversold and sentiment is far too complacent.
We continue in a situation where the selling dries up as soon as we go down. At the same time, it’s not necessarily as if the buying dries up as soon as we rally; it’s that it rotates every few days so that you can’t really sink your teeth into the upside either.
Perhaps the return from the summer will perk the market up.
I have been of the mind that bonds are bottoming. But I have also considered that we might need that one big push where the ‘infamous’ rate of change goes awry, and we get that one last push in rates that helps push stocks down one more time to change the complacent sentiment. Both of these continue to be the case for me. All this dribbling around needs to be shaken up.
Perhaps the inflation data will do the trick later this week, but it’s clear that Oil, Interest Rates, the Transports, and the Utes are all one big trade now. I continue to think there will be a rotation back into tech/semis. That is mostly because Nasdaq got much more oversold a week ago than the others. Semis got a push up on Friday, and so we ought to check in on the chart of EWY, an etf to be long the Kospi.
This week brings a big test: can it get over that early August high? I have thought it can, but let’s see if it can enjoy a rally that lasts more than a few days. Thus far three days has been the maximum and Friday was Day 3.
Aside from that, the indicators haven’t changed at all, and neither have the charts.
New Ideas
Sticking with the semis, about a week ago, I recommended Intel (INTC), which had a nice pop on Friday but is still well under resistance at 100-105. That is my initial target area. The stop under 85 feels too far away now, but that’s the best I see right now.
Today’s Indicator
The HiLo Indicator continues downward. To show you how much selling there has been behind the scenes, it is now at .39. It bottomed at .33 in late March/early April. A good oversold condition would be under .15. Unless we got some panic before it gets there. It’s definitely not overbought anymore.
Q&A/Reader’s Feedback
Albermarle (ALB) ought to come down to that prior low area around 110 and hold. The top it broke down from measures into that general area, so the next trip down ought to be a retest, but it will take quite some time to rebuild a base to overcome that giant top it broke down from.
Uber (UBER) continues to trade in a range between the mid 60s and 80-ish. I would like to say it is poised to break out to the upside, but as of now, I do not see evidence of it. If this current pullback can stay over 74, I’d give it more of a chance, but each time I have been asked about it this year, I have said we buy the bottom of the range and sell the top.
COWS (COWS) is an ETF to be long Cash Flow Dividend Leaders (there is literally an ETF for everything!), and while it hasn’t made any progress in a month, it also has not done a thing wrong. If it breaks that uptrend line, it will have done something wrong.
TTEQ (TTEQ) is yet another ETF for tech stocks. It looks almost exactly like the QQQs. It should fill that gap at 43, and then I’d have to see what the market looks like. For now, I’ll side on rallying to that 43-44 area.
CIBR (CIBR), an ETF to be long Cybersecurity stocks, looks quite similar to the cyber names we looked at a week or so ago: a lot of sideways action but no break of that uptrend line, so unless/until it breaks it, it gets the benefit of the doubt. But it remains the same price it was in early June. And there is a minor higher high. So, a break of the uptrend line (call it 92-ish) would create the first lower low since June.
Look at that decline in Applied Materials (AMAT) since the August pop to resistance: 100 points. And it did it so slowly and relentlessly. But as I am fond of saying, spike lows tend to hold on the first trip down, and thus AMAT ought to bounce from here. First resistance is 475-500. Again, please note how much selling has taken place in the month of August, despite the indexes holding up.
Alibaba (BABA) is yet another stock that has seen so much selling in the month of August. It has a decent risk/reward here because a solid break under 110, and you know you are wrong.
I was asked to update where I thought IGV was on the Sentiment Cycle, but at this point, I think we need to toss that comparison. Oh sure, it still exists (when we last checked I thought we were in the Denial stage), but I have said all along, at some point it will diverge, and we should no longer use that as the guide.
The chart got to resistance and is doing a lot of chopping about. I do not think it is oversold enough (like the semis are oversold) to make a meaningful move right now. If it gets down to that 95 area, it would probably be oversold enough to launch another rally. From here, it looks like a coin toss, which way it goes.
