Just When I Thought Complacency Had Been Pushed Off the Table, It’s Back.
Finally, investors started to show some concern on Thursday, but by Friday, they were back and getting excited about the semis, which concerns me.
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The Market
Note: Since Monday is Yom Kippur, a holiday I observe, there will be no edition of Top Stocks Monday evening. I will resume Tuesday evening. Have an easy fast for all who observe.
For weeks now, I have been hammering away at the complacency in the market. Last Thursday morning, when I saw the AAII Survey and then the NAAIM Exposure I thought aha, we’ve finally pushed that complacency off the table. But thus far, those are the only two sentiment gauges that show any sort of real change.
And it took about two minutes for everyone to get right back on board the bull train. By Friday afternoon, no one seemed to care that breadth has gotten worse, not better. Everyone seemed to think the only thing that mattered was the semiconductors. My, how that view has changed.
In late July, we heard all sorts of reasons why the AI trade has seen its prime. Then the SOX rallied hard for a few days—right back to its 50 DMA—and folks got excited. Then August saw the drift lower, and no one cared about the semis. I kept saying they now acted ordinary, kicked to the side of the road. Yet it was where I saw opportunity. My theme was focus on tech, not the others, and all that broadening out chatter was nonsense.
I still think tech is, on balance, okay, but I do not like it when that side of the boat gets so heavy. The SOX, once again, sits right at a critical level—call it 12,000. And I don’t like it when semis are the only game in town.
With that out of the way, there is a group I will focus on for the next week or two, and that is Industrials. You might recall I highlighted how poorly this group acted in August when everyone thought the broadening out trade was great. I noted XLI could barely make a higher high, and as soon as we got a pullback, it seemed to be leading the way.
It is now at critical support and quite oversold. 168 is the area it held all week. That’s basically the low since it leapt higher off the spring low. It is also where the uptrend line dating back about a year comes in. But wait, there’s more!
There is that gap down to 164/166 that is unfilled. I would give it some leeway to have a quick whack into that gap that then recaptures 168 in a hurry, but if 168 breaks and cannot get recaptured, then that has longer-term implications.
So many stocks are already down and out, and near lows: retailers, restaurants, utes, homies, discretionary, etc. But the industrials have held tight.
The only real change in the indicators is that the Hi-Lo for the NYSE is now at .19, just a notch over oversold territory. Nasdaq sits at .21, which is the same situation. I want proper bearishness to go along with this oversoldness, and I’m not sure that’s what we have.
New Ideas
If you want to speculate—err, bottom fish– in the industrials, then the two charts I would focus on are Cummins (CMI) and Caterpillar (CAT).
CAT needs to get over 835, and then it has a shot at that 850 area. Obviously under 775, and it’s bearish.
CMI met its measured target of 520 from the top it broke down from in August. There is also some decent support here. Thus, a fresh break of 520 that cannot get recaptured in a hurry is bearish.
Today’s Indicator
The Hi-Lo is discussed above.
Q&A/Reader’s Feedback
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When I was asked about Apple (AAPL) a few weeks ago, I said I thought it should fill that gap it left in late July. Now it has. It’s done nothing wrong, but I think it ought to struggle to get through that old high around 345. The same way I believe spike lows tend to hold the first trip down, I feel the same about spike highs. While this is not a spike, it ended on a gap down, thus I would not chase the stock up here.
VXUS, an ETF to be long International stocks, has had a relatively mild correction off the high, but all I see is a chart in a trading range, between 83 and 88. So at 85 it’s a coin flip.
ST Microelectronics (STM) broke a long-term uptrend line but is desperately trying to recapture it. I would say if it cannot get up and over 53 in a hurry—that is getting over that broken uptrend line and getting over that early September high—then I would stay away because you don’t want a stock that can’t get over resistance.
I’d love to tell you that SpaceX (SPCX) looks awesome here, but honestly, it looks like a stock caught in the middle of nowhere. A whack to the 130 area might get me interested, while a push up to 170 probably makes it overbought. I realize it’s got Musk-appeal, but it didn’t sell off in August enough to like it, and it hasn’t showed enough life on the upside lately to like it. If it rallied to 170 and then sold off back to 150, then it would get me interested (drawn in blue).
Edap Tms (FOCL) trades by appointment, and that gap down in August makes it suspect. But the risk/reward is decent because if it breaks 4 you don’t want to own it. If it breaks 4 on a gap, it’s worse.
Someone would like to give First Solar (FSLR) another try. As a person who loves to bottom fish, so would I! This is the area, but a fresh whack under 190, and I’d have to say no thank you.
GE Vernova (GEV) is like so many charts we’ve looked at: the recent highs at 975 equate to the same level as the downtrend lines coming off those June highs. And there are the twin lows below. Up and over 975, and there is something to sink your teeth into. A failure to get over it, and the pattern remains the same as it has been.
Enphase Energy (ENPH) could be a good candidate for tax loss selling as we head into the depths of the fourth quarter. It is so down and out that if it can churn around this low to mid 30s area, it could set up well.
You see that spike high on Affirm (AFRM)? That, in my view, will be a problem on any rally. And breaking 65 will turn the chart bearish from the current neutral.
Nextpower (NXT) is a very instructional chart. It broke support in late August and immediately tried to recapture the break. I often note, ‘if the stock can recapture the break, it’s okay’. If it can’t, it’s not okay. This chart could not recapture the break. Now, 85 looms as resistance. It is possible this could be a tax loss selling candidate in the fourth quarter, but an inability to get up and over 85-ish leaves the chart in a downtrend.
CIBR, an ETF to be long Cybersecurity stocks, hasn’t done anything wrong. I suppose we can fault it for not making a new high, but unless/until it breaks that uptrend line and makes a lower low, it’s not done anything wrong., It’s just not my style to buy a stock that is at the top of the range.
That support line I have drawn in the chart of Medline (MDLN) is the best thing I can say about this stock that is in a downtrend. If it breaks that it’s bearish.
How many times have I tried to bottom fish in KWEB? I’ve lost count. And I have been wrong every time. So sure, we got another bounce, but can it get over 26? That’s the test.
