Sorry, I'm Not Hopping on These 2 Bandwagons
Are small-caps really the place to be now? Let's look ahead to August as the index movers stage a comeback. Plus, how to trade Micron, Taiwan Semi, the Nikkei and much more!
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The Market
Now that’s an oversold rally. And that is also a rally that was highly concentrated in the index movers.
Tuesday the net breadth on the NYSE was +700 and the S&P 500 was down 27 points. That was bullish. Wednesday’s net breadth on the NYSE was +700 with the S&P up 85 points. That is not so bullish. What it shows us is that, just as folks had gotten too short the small-caps back in early July, they were too short the index movers.
For example, upside volume on the NYSE was 59%. Quite frankly that is downright pathetic but it is to be expected. It is why I kept citing the Nasdaq and the QQQs and not the IWM.
But it was also the end of the month and funny things happen on the final trading day of the month. There is, however, a point I would like to make. My indicators — most of them — are based on breadth. Therefore I know there are many who think the small-caps are where it’s at right now. I think they can get one more rally but I do not think they are set up for a great August.
I would also note that all that newfound love for the banks was nowhere to be found Wednesday as the Bank Index was red on the day. Remember, I am no longer a fan of banks here. We had a great run from the October/November low. They may rally one more time but I think we get a better setup later on.
I still think August is set to be a sloppy month. But the question is where do I think the QQQs can go to. Obvious resistance is $475 and then $480 is the gap fill. I would sell some in that area and then we can see how it goes. We still have Apple AAPL and Amazon AMZN earnings out Thursday night and the employment number on Friday. It’s a little tough to pinpoint when we’ll get back to short-term oversold.
New Ideas
Let me begin by noting that after-hours C.H. Robinson CHRW is up on earnings. Since someone asked for an update a few days ago let me follow up again. That base measures to $107-110, but my rule of thumb is that when the Market Gods offer you a pop of 10% you take something off the table.
A few days ago I recommended Snowflake SNOW and it hasn’t done a thing. It still looks okay to me but if it can’t rally in the next week I will give up on it.
Today’s Indicator
The Volume Indicator is at 54%. I admit for all the broadening out we had in the month of July this has been much less vigor than I expected. It is into overbought territory now.
Q&A/Reader’s Feedback
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Micron Technology MU almost filled the gap at $100. The top that broke at $130 measures to $105. I suspect we see some more rallying and then another trip back down, maybe akin to what we saw in March/April, just some sort of retest of yesterday’s low. I would consider myself wrong if it cracks under $100 like it means it. That means the stock can dribble under it but it can’t smash through it.
Taiwan Semiconductor TSM has some resistance at $170 but more at $185 on that gap fill. If the stock fails at $170 and heads down I think there is a good chance it retests $150 (at least). If it can make it to $185 the chances go down.
The Nikkei was a hot market earlier this year but has stalled out. My initial inclination is to sell that gap fill at $112-113 on WisdomTree Japan Hedged Equity Fund DXJ but the chart hasn’t done anything wrong because it continues to have higher lows.
I believe Airbus EADSY is trapped in a range now with resistance at $39-40 and support around $32-34. If it smashed down to $32 it might be worth a look as then it would have met its measured target. Otherwise, it looks sideways to me.
I am still not a fan of the banks here. I just think they are overbought/over-loved. For Citigroup C there is a measured target around $68 so maybe it has another pop in it but mostly I just don’t see a lot of opportunity in the banks right now.
