How Long Will the Chop Last?

The Market

The bulls were excited early in the morning while the bears got excited early in the afternoon. In the end we got what we expected: chop.

The question is how long will the chop last? It feels as though we’ve been in a chop fest forever but in reality the S&P was at 5297 on May 16th and it is at 5283. I try and play the swings but lately the swings have been so short it is hard to play them.

We got oversold in early May. The S&P tagged just over 5300 and then went sideways for two weeks before we had a 2-3 day decline. That was it. Oh sure the decline was three percent, but it was a few days. Now we’ve rallied, so much of it in one hour, but unless/until we get up and over 5350 and clear it like we mean it, this is a chopfest.

I will point out that the DSI for the VIX is right back to 15 so if we have much more rallying, this will be back to the ‘be careful’ zone.

In the meantime, the Russell 2000 IWM still has that uptrend line I drew in last week. But now let’s add the SOX to that list of charts with uptrend lines that were tagged.

Then there are the meme stocks which came back into focus today. And if that wasn’t enough, the Financial Times had a statistic today that really caught my eye: seven of the top ten most traded US stocks in May were penny stocks, worth less a buck.

If you were wondering if there was speculation in the market, I suggest that statistic says ‘yes’

New Ideas

I may as well address the Oil Services ETF OIH which collapsed today. Obviously I did not see that coming. Sure there is support here but I’m not sure we can get much more than a little bounce out of it now.

The only hope I can offer is that the selling in the Energy SPDR XLE just seemingly gave back Friday’s surge.

Today’s Indicator

The 30 day moving average of the advance/decline line is overbought.

Q&A/Reader’s Feedback

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American Tower AMT has improved quite a bit. I still think there is work to be done. For example if it can map out as I have drawn in blue I think that improves the chances of this being a much improved longer term chart.

I don’t know if Microsoft MSFT is going to break down but my guess is that for the time being it is just trapped in this sideways pattern between 390 and 430. It had the chance to break and couldn’t but it also had the chance to breakout to the upside and couldn’t. In a market that had a strong intermediate term oversold condition I would look for it to break out but that is not the case.

I was asked to follow up on Five Below FIVE which I thought was oversold enough to rally last week. I would say it is into some resistance here and there is not enough of a basing pattern for me to calculate a proper measured target. That’s why I would tend to take some profits as it nears this first resistance area.

I would love to see it come down again (form a W), maybe on bad earning/news.

I have not been a fan of the real estate stocks and I’m not sure I am yet now. However if Vanguard's Real Estate Index Fund ETF VNQ can do some more sideways work in the coming months without breaking 78-ish then I would warm up to it on a longer term basis.

I am using a 3 year weekly chart on Bloom Energy BE because it is trading so close to its high. To be fair It could easily pop over the one year high around 18 but then it gets stuck at 20. And you can see all that resistance from 2022 that sits there. My take is there is more work to be done before it will be able to eat through this. For now I see resistance 18-20.

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