Have Patience and Take a Deep(ly Negative) Breadth
Just how oversold is this market? And how much further could it go? We'll also take a look at WMT, UBER, INTC, and EOG.
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The Market
Many want to know why I keep calling the market only a little bit oversold (short-term). Because if we were as grossly oversold as everyone seems to think we are, do you really think we would have given back more than half of the day’s gains?
For my work to get to a good oversold condition (short-term) we need breadth to be poor for many days in a row. As we head into Wednesday of this week breadth has been negative for six of the last ten trading days. That’s not much.
Let’s say we had poor breadth tomorrow and then for the remainder of the week, so three more days of negative breadth. That would lead us to a good short term oversold condition sometime next week. I am not sure we can get three consecutive days of negative breadth right now. The crack we saw was quite fast in that it didn’t give the market time to have negative breadth days before it started sliding.
That is why I say a little bit short-term oversold.
Then there is the intermediate-term where I simply don’t see when we will be oversold yet, having just gotten overbought last week. Now should we manage to get a slew of red breadth days in the next several days then I would say we could be intermediate-term oversold near the end of August.
Sometimes it is easier to see it on the Hi-Lo Indicator. Yesterday, Nasdaq’s was at .50 and today it is at .47. That’s not even where it was in late June, and certainly not where it was in April. But it is heading toward an oversold condition.
We have had a major disruption in the market and that takes time to work through in some fashion. I can’t force the indicators to get there just because after a week of this everyone is now ready for it to be over. Patience is not something we are known for but they say it is a virtue.
New Ideas
I think Walmart WMT is going to come down and tag that line before this is over. Shockingly it has barely corrected.
Today’s Indicator
The McClellan Summation Index is heading down. It will need a net differential of +2000 advancers minus decliners on the NYSE to halt the decline (which hasn’t moved much).
Q&A/Reader’s Feedback
I want to follow up on the chart of Uber UBER. I had thought when we looked at it the other day that it had a target lower (in the 40s). However it gapped up today leaving the last two days as a potential island. As long as it does not fill the morning gap, the chart would now flip to bullish. If it fills the gap, then that comes off the table.
Is Intel INTC a buy on this gap down? Well it measures to 17-ish so with Monday’s drop to 19 it’s close. But it’s got two issues. First, we don’t see any signs that it wants to hold and start basing. Secondly, I would put this stock at the top of the list for tax loss selling as we get into the October to December season. So while this might turn out that the price is right, it seems to me we should at least wait until it shows some signs of being sold out.
I don’t know what to do with EOG EOG because I like that it has a higher low vs June but can it rally? So if you want to take a stab at it, then just use a stop under that 120-ish area.
