Keep an Eye Out for the Chance to Sell Biotech
XBI seems to be heading toward support and a bounce would be a good chance to do some selling.
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The Market
Maybe Monday’s crummy action drew in a few more bears. It is not enough for me to say sentiment is knocking on the door of bearishness, but it certainly feels as if it has shifted or is in the process of shifting.
I do think Nasdaq is heading toward an oversold condition. I would like to see it bounce Tuesday and/or Wednesday and come down again. Maybe I am being picky, but I like it when sentiment lines up with an oversold condition. And sentiment needs to catch up.
In terms of Nasdaq’s oversold situation, the “what if” for the McClellan Summation Index is still at +11 billion shares. That makes it oversold now. For a fuller explanation of this indicator, please see Sunday’s missive.
The Nasdaq Momentum Indicator, when I do a “what if” on price, still shows up as an oversold condition about a week from Monday. As a reminder, the exact date is not the issue, it’s the general time frame.
Even if you look at my own Overbought/Oversold Oscillator, you can see how oversold Nasdaq is getting. So yes, a bounce is in the offing. A good bounce, in my view, ought to require some more bearishness.
There is a narrative around that the small caps have been outperforming the big caps and that is good news. Would it shock you to know that in the month of July (recall the Russell got overbought the last week of June) the Russell 2000 has been green exactly four days?
I think August could be a tough month for the “others.”
You already know I am not a fan of the banks anymore, despite everyone loving on them. Where were they in late May when the banks were bottoming?! But to that I want to add the biotechs.
Short term, they are a little bit oversold but I think, in the next few weeks, we are more apt to see (XBI) head toward support (135 to 140) than we are to see it get back up over 165. A bounce in the next few days would offer a chance to do some selling.
I want to end with a note on bonds:
Interest rates do look as if they want to breakout. They might. My contention for three years has been that they are in a trading range and there will be times they sneak outside the range and then come right back in. This might be one of them. The DSI on the bonds is now at 25, so it’s too soon to talk about an extreme there but any move outside the range should get this to be a teenager in a hurry. Then I’d be talking about an extreme.
New Ideas
Way back in late June when the DSI on oil got to 12, my pick for an oil rally was Chevron (CVX). It has done OK. It is now into some resistance and the DSI on oil is 80 which the DSI on heating oil is 85. I would like to see CVX pull back toward that line. It could use some backing off.
Today’s Indicator
The 30-day moving average of the advance/decline line will be fully overbought between Thursday and Monday. That is just one reason I expect the month of August to be a tough one for the “others.”
Q&A/Reader’s Feedback
I recommended American Express (AXP) about a month ago and it’s done well but now with earnings on the horizon, I’m a profit taker. It’s got a decent amount of resistance overhead. It didn’t quite fill that gap at 370 but heading into earnings, with the stock up nearly 20% since early June, it feels vulnerable to profit taking. If you want to hold on, then that support at 335 to 340 needs to hold.
Carmax (KMX) filled the gap and is now vulnerable to a correction back to the 48 area. And it reached its first target when it tagged 58 to 60. I would lean toward profit taking or waiting until it maps out another pattern (which I think could show up in the 48 to 50 area).
I will assume Synopsys (SNPS) had some bad news last Thursday when it gapped down to the prior lows. My rule of thumb is the first trip down to a spike low tends to hold (see November versus September). The subsequent ones are a coin toss. The stock is oversold down here but if it can’t rally back over 400 in the next week, I’d think it’s going lower.
(DRAM), an ETF to be long memory stocks looks like Micron (MU) or any of those other memory stocks. Right now, it is caught between support at 47 and resistance at 57. I want to see if it can hold that 48 area if it comes back down late this week (as I expect it will).
I want to see how Chipotle Mexican Grill (CMG) looks on a pullback to that 31 area. Will it hold? If it does then it could be the right shoulder of a head-and-shoulders bottom. Right here at 33, I don’t trust it to hold just yet. But at 31 it will be down nearly 20% from the recent high. Push me again if it gets down there.
Zevra Therapeutics (ZVRA) had/has a measured target at 16 and it got to 15, so was that enough? If the stock can hold 11.50 to 12, I might take another look at it but since I am of the mind that biotech is vulnerable here I’m inclined to stay away from this now.
Helene welcomes your questions about Top Stocks and her charting strategy and techniques. Please send an email directly to Helene with your questions. However, please remember that TheStreet.com Top Stocks is not intended to provide personalized investment advice.
