When We Reach Overbought, Will Breadth Be at a Higher High?
We want to see breadth making higher highs when the indexes do. But will we? Let's also look at AMY, ALB, SQ, ADBE, GDX, and JACK.
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The Market
Breadth was better today but still not at a new high. Remember, each day we get closer to the end of the week, we’re one day closer to getting short-term overbought. But if we get short-term overbought with breadth at a lower high, that’s different than getting overbought with breadth at a higher high.
And we also care about sentiment. As we get closer to an overbought condition, is sentiment giddy? The DSI numbers did not change today but the put/call ratio was .75, the lowest reading since August.
Mostly what I see is Banks did better today, as did Transports. The Utes were up despite bonds being closed (and TLT red).
Then there are the semis, which were such a favored group for so long and now are just plain sloppy.
Finally, we have the meme stocks, which always seem to show up when speculation runs amok. When GME and Blackberry are shooting higher, we know it’s getting absurd. And then there is bitcoin, which has gone parabolic. For those who think I will be able to pick the top there, I will not. Folks can speculate all they want but I can report that the DSI for BTC is 83 so using that metric, it’s not gotten too carried away. Yet.
Mostly, I think what’s happening now is that any stock with any level of short interest is getting attention. You might recall my pick of Block SQ a few months ago. Sure, it’s been a good pick, but look at the action on those terrible earnings on Friday. And then today. That screams of someone who got caught short. I don’t care who recommended the stock today (yes, someone recommended it). My next measured target has been in the old high area, so it’s getting close, but the point is that this is not normal action.
I could go on but Lyft (which I liked at 12) has been surging while Uber has sat there like it hasn’t a friend in the world.
New Ideas
If you want something else that is odd, the drop in oil prices today was quite large, yet the oil stocks were all up.
Away from that, I have recommended Adobe ADBE a few times recently, and it hasn’t done very much yet it still sets up to me as a stock that is trying to bottom.
Our old friend Bristol Myers BMY had a terrific gap up today so I was asked what to do with it. Whenever I get a move like that I tend to take a few profits. However, the measured target remains in the mid 60s off that base so I’m just taking a little bit off the table here.
Today’s Indicator
The 30-day moving average of the advance/decline line has barely budged (it was not oversold). I expect it to peak late this week.
Q&A/Reader’s Feedback
I have not liked Gold for quite some time (before it made its high), and the collapse in GDX over the last two weeks, with nary a rally, is a cautionary tale. To be sure, I was not bearish on Gold, I just didn’t like the chart and the sentiment. Today GDX broke an uptrend line that has been in place since the spring, and it did so on a gap, which is bearish. There is support all the way down, though, so I can’t say where I think it is going, but at this point, I would say resistance at 29-40 looks formidable, so a rally up there would be a good place to sell it.
My guess is Jack in The Box JACK will rally again from this 45-47 area. What I am unsure of is if it can overcome that spike high from last week at 54 and change. It feels to me as if the chart is in the ‘prove it’ mode so it needs to prove to me it can get over that downtrend line and hold it.
Since I like LIT, an ETF to be long Lithium (written up here last Wednesday evening), I was asked about the breakout today in Albermarle ALB. It’s got some resistance at 110, but that head and shoulders bottom measures to the 125-130 area.
