Stocks Surge Despite a Hidden Warning Sign That Traders Can’t Ignore
The market staged a powerful rally, but semiconductor stocks, weak breadth, and rising call buying suggest investors may be overlooking important risks beneath the surface.
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The Market
Sure, I said I thought the market could rally Wednesday/Thursday but I did not expect the rally we got. And I certainly did not expect to get a rally such as we got with the SOX staying red all day and continuing to sit below the 200 DMA.
And there’s this statistic: the five most active stocks today were all red. The Either/Or Market is alive and well. And still, no one really likes the staples!
Let’s start with sentiment, though. The Investors Intelligence bulls fell a smidge as they are now down to 42.6%. That is good news. But those correction-minded folks actually increased! It appears that the few who fled the bullish camp jumped the fence to the bear camp as the bears lifted to 18.5%. That isn’t much, but is the highest since we came off that spring low. Progress!
Of course, that takes in the action through last Friday. The put/call ratio today fell to .76, the lowest since the waning days of September. So there was no shortage of call buying today. Finally, the DSI for the VIX, which we discussed a few days ago when it was at 37, has collapsed to 20! If it falls to a teenager, it will once again go on the watch list.
What I am trying my hardest to determine is when the semis will get oversold enough to enjoy a bounce. All week I have been looking at next week for Nasdaq to get oversold. So if my view that the market should rally Wednesday/Thursday and then come down again is correct, then perhaps we have to be on the lookout for a level of capitulation in the semis in the coming days. And as a reminder, it would just be for a trade.
Finally, I want to revisit GLD since we never did get the DSI under 13. But what we did get was a gap up over resistance, so I am a fan of GLD.
New Ideas
The short in Valero (VLO) has been a good one (down nearly a hundred bucks). I suspect it makes its way down to that line at some point, but when a trade works that well that fast, I think we take our profits and go.
As a follow-up, someone asked about Cisco (CSCO) last week, and I said I thought if it came down into that 100-101 area I might be interested for a trade. It’s getting awfully close, so put it on your radar. Earnings are out in about a week, though.
Today’s Indicator
The Volume Indicator is back to 50%. It gets overbought in the mid to upper 50s.
Q&A/Reader’s Feedback
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Clorox (CLX) will run into some resistance in the 103-105 area, and if it can get all the way up there, it will surely be overbought. Since I am reliably told that we shouldn’t buy staples (!!!!) I would still be inclined to take some profits if it got up there. Then we’d see if it pulls back enough to like it again.
Boston Beer (SAM) has had a great run and has a measured target in the 230 area, as well as getting to resistance. I would be inclined to take a little something off the table in that 230-240 area if it gets there, but that’s the worst I can say about it.
Trade Desk (TTD) has earnings out next week, so take this with a grain of salt. If the stock can get over 14, I would consider that a big enough deal to give this a year-end tax-loss selling chance at filling the gap to the 17-18 area.
Lineage (LINE) will run into resistance in the 40 area.
Equinox Gold (EQX) should get over that downtrend line since the DSI for GLD had gotten to 13 recently. If it can’t, then I’d be a seller.
I believe it was sometime in the last few weeks I said I thought Netflix (NFLX) would be a good tax-loss rally candidate. I believe it was around this same price when I said that. I still believe that, but that resistance at 68 is going to be tough to get through. If it gets through then I think it can get to that gap fill around 75.
I don’t love the gap down in Lockheed Martin (LMT) leaving a tiny little island overhead. It ought to bounce off that 580 area, but I’d lean toward profit-taking.
Several of you have asked about GE Vernova (GEV) after I recommended GE Aerospace earlier this week. This looks like a top, except that it hasn’t broken 800 yet. I don’t love the chart, but if you want to give it a try, then use a stop under 800. I think it can bounce but unless it gets over 925, I am not terribly positive on the chart.
Eldorado Gold (EGO) came into support, and as stated earlier, the DSI on GLD got to 13. I think it works its way higher, and if there is another dip, I would want to see it stay over 30.
Annaly Capital (NLY) should rally some more now that it has recaptured 18.75. I would not like it if it went back under 18.25.
I don’t like charts that are up so much like Abercrombie & Fitch (ANF), but the chart hasn’t done anything wrong yet. Retailers do tend to peak sometime around Thanksgiving, so I would use a stop under 155.
