In the Short Term, Pay Close Attention to the Intermediate Term

The Market

I want to begin by reiterating something I wrote as the opening paragraph in my weekend missive.

Over the next few weeks, while the market is intermediate-term overbought there will be times that I note that we have gotten short-term oversold either the market or a group (see my comments on the semis that same day). But that doesn’t change the intermediate-term overbought-ness. I think those short-term rallies will be short-lived.

This week is a great example of this. Tuesday the market was strong all day but there was no follow through on Wednesday. Then on Thursday the market opened strong but couldn’t maintain the lift. It is hard to get a significant amount of upside momentum when we are overbought like this.

I still anticipate we will see an increase in volatility in the weeks ahead. I will change that view to a more negative one if we get the breadth indicators to roll over more than they have. Right now they have nudged down, but not in a serious fashion.

I am also monitoring sentiment. I think it is more hopeful than complacent, although there are some signs we’re getting a bit more complacent. For example, the AAII (American Association of Individual Investors) folks are having none of it as the bears once again outnumber the bulls. But the NAAIM (National Association of Active Investment Managers) folks have increased their exposure to 88, the highest since March.

The options ratios have also begun to show complacency. The 10-day moving average of the ISE call/put ratio has begun to climb into the stratosphere. It hasn’t rolled over yet but once it does, I would view it as peak complacency.

Down below you can see the CBOE’s put/call ratio has already turned up, indicating complacency. And naturally Thursday the penny-stock folks were back with three of them accounting for 3.5 billion of the 11 billion shares that traded on the Nasdaq.

New Ideas

I was asked if I have a target for Amgen AMGN. I do not. I would like to see the stock cross this downtrend line and then come back for a retest as I have drawn in blue. Then perhaps I can do a calculation.

Today’s Indicator

The put/call ratio is discussed above.

Q&A/Reader’s Feedback

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I want to like the chart of PayPal PYPL because it went over the March high and has held it ($70-ish) into this pullback. But it did not rally well Tuesday. It did not rally well Thursday so it has been pulling back for three weeks now after making a marginal higher high. For now I will call it a stock trapped between $67 and $75, but I will watch for signs it wants to break one way or the other. Right now it looks like a coin toss.

We looked at UnitedHealth Group UNH when it plunged two weeks ago. I said unless it gaps up over $275 and leaves that day’s trading behind the stock would probably only rally to fill the gap and come back down. I think it is coming back down now. I would not give up on it having another rally though. Might just need a lot of patience.

At the time I said I preferred speculating in Cigna CI, which had also gotten hit but had had an outside day. That stock ramped and has come back to minor support in the $310 area. I don’t really want to see CI break $305.

Astera Labs (ALAB) had a measured target off that April bottom around $90. Now it’s $97 so the 90/100 rule applies (90% of the stocks that makes it to $90 will make it to $100). Under $90 and this starts to look questionable.

Since I am now a fan of some drugs stocks (see Amgen AMGN) I was asked if Bristol-Myers BMY can rally. It met its downside target when it tagged $44 so I’d use a stop under $46. But if it can’t get over those twin highs just over $48 I’d fret. I lean toward thinking there’s a trade in it.