Options Traders Bullish, But Fewer Stocks Hit New Highs. Is The Rally Sustainable?
The speed with which options traders have turned bullish is a little too quick for comfort. Will we reach overbought before backing off?
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The Market
The bulls came out of the woodwork today!
When I see the put/call ratio sink to .69, the lowest reading since late May, I know folks have jumped on the bandwagon. Is it too much too soon? For me it is! But do I expect we will see buyers step up if technology backs off? I do. For now.
It’s too soon to nail down a time frame for Nasdaq getting overbought, but early next week looks to be a possible time frame. We need to see how the remainder of this week plays out. So far, all we have is the Nasdaq Overbought/Oversold Oscillator finally crossing the zero line. As I said yesterday, a down day is helpful.
I continue to monitor the stocks making new highs. You can see the S&P is at a new high, and the number of stocks making new highs is still lower than it was in June and even July. Not to mention far lower than we had in the first quarter.
Nasdaq, too, has fewer new highs, but at least Nasdaq has more new highs than last week, whereas the NYSE does not.
I will admit that the jumpy nature of the market is not to my liking, even though I expected tech to rally and lead the way. The index charts now resemble penny stock charts. We often see that off a big low, not a 3% pullback in the S&P. That’s probably why the VIX was green today.
Let’s watch the sentiment because it really feels like folks jumped the fence from bear to bull really fast.
New Ideas
My go-to chart in the semi space has been Western Digital (WDC). They report earnings tomorrow, and I want to point out that, thus far, it has not been able to get over that short-term resistance. Oh sure, maybe it does so on earnings, but if you have some money in the trade, you might want to book a few profits before earnings.
Today’s Indicator
The Nasdaq McClellan Summation Index turned upward for the first time in more than a month.
Q&A/Reader’s Feedback
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You might recall I liked McDonald’s (MCD) earlier this year. It had a nice rally, and then it died. And I haven’t liked it since. I still don’t. But if, over the next few months, we can see MCD begin to map out a pattern akin to what I have drawn in blue, then I could see myself warming up to it again. But it needs work to get there.
I’ll begin the review of Circle Internet (CRCL) by noting earnings are out tomorrow, which makes the stock a gamble. That having been said, it is beginning to have a rounding under feel to it. There is resistance overhead almost the whole way up, but if it can cross over that 70-75 area, that would be a big plus.
When we look at a chart like Fluor (FLR)—another stock that has earnings this week—we don’t see much of a pattern as the stock has gone sideways for most of the last year. If it can get over 54-ish, I’d consider that a plus.
When it comes to SLB (SLB), I am uncertain if this pattern, developed in the year 2026, will turn into a head and shoulders top or if the shorter-term pattern (gap up and then fill gap gently) is more important. Use a stop under 48.
Qualcomm (QCOM) has some light resistance at 165, but it is much more serious at 175-ish. Since I am currently favorably disposed to the semis, I’ll give this chart the benefit of the doubt.
Back in mid June, I said I thought Marriott (MAR) should come down and tag that uptrend line (-10% from the high). It did just that, and then it broke the line with a vengeance. There is a gap to fill just underneath (blue line), so I would expect a bounce from there, but that’s the best I see right now.
Nextpower (NXT) is not a great chart, but it is at support, so I think it bounces. If that bounce can cross that downtrend line, then I would expect resistance to be a problem all the way up, but at least it would halt the downtrend that has been in place for two months. It feels speculative to look for a move over that line, but I think it happens.
