Overbought With a Side of Worry
Stocks are still overbought and short-term traders are still bullish. But there is some worry creeping into the market.
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Note: I am on vacation for the next week. The next edition of Top Stocks will be Labor Day weekend (likely September 2nd).
The Market
Aha, so that’s what an overbought market should do. But will there be follow-through after folks hear Chair Powell on Friday? I honestly have no idea.
But what I do know is that the market’s overboughtness is coming down. And, if we can get the market down next week, as we head into the Labor Day weekend, we would be back to an oversold condition post Labor Day.
Right now the day traders at the AAII have turned bullish with a reading of 51.6%. In the last year and change we have seen readings over 50% for bulls four other times. Three out of four saw the S&P sell off at least five percent. The other time it was the Russell that took it on the chin pretty hard.
So considering that these folks tend to jump around like day traders it is not difficult to imagine if the market pulls back heading into Labor Day, by two weeks from now (just after Labor Day) these folks could be back to 40% bulls in a heartbeat. And at least we’d be oversold by then---if we come down next week.
One other thing to consider is that if we do get some more downside next week and folks do turn bearish or at least more cautious, can you imagine the chatter as everyone frets over the dreaded seasonality of September? I’m already hearing it.
There are a lot of moving parts to that scenario but it is one to consider because sentiment has really gotten a bit too bullish in the last week and that needs to change.
I’ll leave you with the one statistic that I’m continuing to watch. New highs continue to disappoint as they have not expanded all week. The good news is that new lows did not really expand today but I know breadth has been good during this rally except there is not a growing list of individual stocks are making a lot of progress.
New Ideas
Several of you have asked about interest rates. Let’s use TLT. This is the area I think it stops. Even if TLT rallies tomorrow I think that spike at 100 will keep a lid on it. My guess is if TLT gets back to that line around 94 there will some laundry list of reasons why we can’t buy it but that’s the spot I have in mind.
Today’s Indicator
The ten-day moving average of the put/call ratio is already back to .90. The market needs a little fear to creep back in.
Q&A/Reader’s Feedback
I look at the chart of Adobe ADBE and all I see is that looming resistance at 580. Actually I see a stock that has gone nowhere in a year and is actually down on the year. For now I will call it a trading range between 500-580/600.
I was asked to follow up on Newmont NEM which I recommended here months ago. I think short term it is a bit overbought and over extended but longer term it measures to the 58-ish area. I would not chase it here but would wait for it to set up again.
I still believe that Pfizer PFE is building a base so I would be a buyer around 28. I would prefer not to see the stock fall under 27.
