Retail Joins the Downside as Market Wakes Up
Market participants seem to have finally woken up on Monday.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
The Market
It was as if everyone woke up on Monday and saw the divergences in the market and said, "Wait a minute!" Oh, don’t fret, they still love semis and AI, but all of a sudden they noticed the banks. Amazing.
The banks continue to act terribly. But this is not new to us as I have been harping for weeks now. And on Monday, retail joined the downside. Folks seem to have noticed that. I noticed that many of them had a lot of volume relative to what they have been trading. That tells me someone just wanted out.
The one I have my eye on is Walmart (WMT) only because, to me, it is the (JPM) of the retailers. Remember, they recently switched over to trading on the Nasdaq from the NYSE. And they reside in the (QQQ) . WMT did not make a higher high on this recent run and is now in danger of breaking that uptrend line.
Breadth was negative on Monday, but still the McClellan Summation Index did not roll over. It just sits there, churning away. The biggest change in breadth is the number of stocks making new lows. I have been adamant for weeks that, while the new lows on Nasdaq were bothersome, they would not matter much unless/until we saw them in that 200 area. On Monday, we saw 195 new lows. That is the most since the lows.
I want to end with a comment on bonds.
A week or so ago, I said that if bonds broke I thought the DSI would get low enough quickly that the break would be temporary. But bonds rallied (rates came down) and the DSI went up. It now stands at 37 (it was at 24 when I wrote that about bonds). So they go on the list of the problematic now, too.
To put this all together: We get intermediate term overbought this week. The VIX moved up quite a bit Monday (increased volatility is my call). We have giddiness in semis and we have nearly everything else stalled or starting to fall (retailers and banks). I like that the metals (I recommended (XME) a week ago, although it hasn’t broken out) came to life. But for the overall market it still feels like we should look for increased volatility now that we’re intermediate-term overbought.
To get more than just increased volatility we would need to see that MDY under 670 and the Summation Index roll over.
New Ideas
Just a reminder that, last week, I went back to the well on Alcoa (AA) . Even if it backs off in the next few days I still think this low 80s area is OK.
Insert aa here.
Today’s Indicator
The 30-day moving average of the advance/decline line will be overbought Wednesday.
Q&A/Reader’s Feedback
I like the chart of Bullish (BLSH) even if I’m not a fan of the name of the company! It is building a base, but really needs a push up and over 50 to confirm it. I don’t want to see it trade under that uptrend line. Note: earnings are next week.
I would love to bottom fish in some of these beaten down software names but they are starting to differentiate themselves in a big way — see Trade Desk (TTD) versus, say, Microsoft (MSFT) or Oracle (ORCL) — and thus are no longer moving as a group, so I would much rather wait until proper bases form before taking a stab. If you want to give it a try, then you really need this to get up and over 35 which would give it a higher high and cross the downtrend line.
Eli Lilly’s (LLY) chart has not changed much for me. It bounced off support and got to resistance. What I would like to see is the stock start chewing through that resistance overhead. I think it can do it but thus far it is the same price it was two days after reporting earnings so it shows us it’s a slow process.
AeroVironment (AVAV) is clearly short-term oversold. But I’m not sure where the chart is going or can go until it starts eating some resistance. I always hesitate when the measured target seems outrageous but there is a measured target (long term) about 130 points lower. For now I’d like to see if it can even bounce to that 175 area.
Peloton (PTON) had a great rally to resistance and filled the gap. I think it ought to pullback to at least this 4.75 area. If it can hold that then maybe there is another trade in it. There is no base to speak of.
If Molina Health (MOH) can pull back without breaking then I would think the next time up it ought to finally breakout. But with the stock there are so many gaps I would use some patience to see if this pull back can be gradual and therefore buyable.
CBOE (CBOE) hasn’t done anything wrong but I wouldn’t chase it here. I would love to see this chart take a breather and form another pattern as it did in March and April. I would call it a stock in an uptrend and we’re just looking for a new set up to buy it.
A few weeks ago I would have said that Shopify (SHOP) was just doing the back-and-forth thing, trying to build a base, like many software stocks. But the selling just continues. It ought to be oversold within a matter of days, so a short-term rally is doable, but can it get back over 115?
I have not been a fan of Snowflake (SNOW) because of the resistance overhead. But I do like that spike low in early April. If it fills that gap around 140 and can hold there, I’d get interested in buying for a trade because the stop would be under 130 so the risk/reward would be OK. The big picture is that it has to get up and over 160 to halt this downtrend.
Chewy (CHWY) is short-term oversold but that’s the best I can say right now. Look how often the chart goes sideways and then gives way to the downside. That pattern needs to change.
