Finally Oversold. Now, Is the Market Able to Rally With Good Breadth?
A late day sell-off on Friday finally pushes the indicators to oversold. But what's next? Plus, we look at QQQ, XLV, MSTR, GOOGL, and LMT.
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The Market
There is always a question if a late-day sell-off on a Friday is a reflection of traders having some sort of concern for a weekend event. It’s possible that’s what Friday was, but the sell-off did start within an hour or so of the gap up, so who knows?
And as we know, I am terrible with narratives and I do not like to rationalize an indicator. On Thursday, I said I thought it would be better if we could get breadth negative on Friday—and maybe even Monday!—to at least push the market closer to a short-term oversold condition. Friday gave us that.
I don’t think this is a great oversold condition but you can see there is a short-term oversold condition developing on the chart. Even the Volume Indicator fell to 52%. That is not oversold, but it is heading in the right direction.
The question though is, will we see the market rally with good breadth or will we see the index movers do the heavy lifting? The Index movers will report earnings this coming week so let’s take a look at the chart of the QQQs QQQ.
Let’s call that resistance 500. From a pure chart perspective–let’s forget the rally from August—they have been going sideways for nearly four months now. If the market were short and intermediate-term oversold, I’d think, okay, let‘s look for a big breakout, but we are not intermediate-term oversold, so I would just say that if it cracks over 500 and folks start chasing, I wouldn’t fight it but my confidence level buying QQQ here is not the same as it was in August or even September when I was very much in favor of buying the QQQs.
The only thing that really changed on Friday is that the DSI for bonds came down to 22. But it is now quite obvious that the market is sorting through the move in interest rates. Oh, I know the S&P is hanging in there just fine, but individual groups are feeling it: Homies, REITs, Staples, even the Utes. So if you want a rally with more than the QQQs in charge, we need rates to stabilize and head down.
New Ideas
I was asked if the Healthcare Select Sector SPDR XLV was getting oversold yet. There is certainly support in the 147-148 area but the chart has been making lower highs and lower lows since September. I do think the chart should bounce from this support but I’m not so sure it is going to be able to get over 151-152 easily.
Today’s Indicator
Everyone was so excited Friday morning when Nasdaq made a new high. Notice that in July the last time Nasdaq was at this level, there were over 500 stocks making new highs. Now, there were 114. That’s what happens when the index movers carry the ball.
Q&A/Reader’s Feedback
We have looked at Alphabet GOOGL (which reports earnings on Tuesday) recently and I hate to make a comment on a stock just before earnings, but my view hasn’t changed. I still see a potential head and shoulders bottom, but the stock has to get up and over that 168-ish area so that it can fill that gap near 180. I don’t want to see it break under 160, but that doesn’t disqualify it; it just makes what could be a good chart a not-so-good chart.
I was asked for a measured target on MicroStrategy MSTR. It measures to the 240-250 area with a possible target around 260.
Lockheed Martin LMT is oversold down here around 560-ish. I don’t like catching falling knives, but down ten percent, the stock should attempt a bounce. What you don’t want to see, though is a bounce to 580-ish that then comes down and breaks 560-ish. I wouldn’t be surprised if it sets up that way.
