Will Spike Lows Do the Right Thing?
On Monday, many stocks and indexes had spike lows. Let's take a look at volume, breadth and sentiment to see what could come next. We'll also evaluate MPLX, OEC, BATRK, SNA, and DELL.
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The Market
Are you nauseous yet from all the wild swings?
Today we are going to talk about Monday’s lows. The S&P’s low was 5119. On a closing basis, it was 5186. Nasdaq’s intraday low on Monday was 15708. Its closing low was 16200. Jot those numbers down because we’re going to come back to them.
The first thing we notice is how many stocks and indexes had spike lows. Spike lows tend to be retested. I don’t have any statistics for you, but my sense is that spike lows, unless there is a gap down under them, will tend to keep the decline in check –on the first trip back to them.
That doesn’t mean they hold forever, or even a few weeks, but generally speaking, the first trip back to a spike low finds buyers, even if it is shorts covering.
Nasdaq made a new closing low today (16195) vs. Monday. If the market were closer to an intermediate-term oversold condition I would make a fuss over this. Why? Because there were fewer stocks making new lows today than Monday, and breadth is higher than it was at Monday’s close.
If those spikes are revisited and we break under them—even by a few pennies—and there are fewer new lows than Monday (221 for the NYSE and 597 for Nasdaq), that would be the first positive divergence we’ve seen.
I would remind you that if the market is lower in the next few trading days, I do think early next week would finally bring us a good short term oversold condition as opposed to what we’ve seen where we are just a little bit oversold.
The intermediate term is still not oversold and even a few more days won’t get us there. For example the Nasdaq Hi-Lo is now .44. It gets oversold under .20. Also the Volume Indicator, shown below, is at 51%. It doesn’t get oversold until it gets to (at least) 47%. It moves slowly.
But there is good news. You see, the Investors Intelligence bulls jumped ship in a big way. They fell by 13 points this week (and this is before this week’s action). In the last thirty years they have only done so 4 other times. Each time the market bounced. Three of the four times it bounced and came back down. That is still my preferred scenario: bounce and back down.
Tomorrow everyone will fret over the Unemployment Claims so be aware that will be the new economic data point to fuss over each week.
New Ideas
I was asked to give a downside target on Dell DELL but I think the chart is instructive because se how it did break Monday’s spike low? It gets a chance to rally tomorrow but if it can’t, that’s bearish. The measured target is around 70. There is a gap fill around 80-ish. I would say if it makes it to 80 in the next few days it is oversold enough for a bounce.
Today’s Indicator
The Volume Indicator is at 51% which is not even close to an oversold condition.
Q&A/Reader’s Feedback
Helene welcomes your questions about Top Stocks and her charting strategy and techniques. Please send an email directly to Helene with your questions. However, please remember that TheStreet.com Top Stocks is not intended to provide personalized investment advice. Email Helene here.
Atlanta Braves BATRK hasn’t done anything wrong but it had an upside measured target of 44-45 and it got there. It’s possible the Braves win the World Series (!!!!) and the stock gains but I’ll just go with if it can go sideways for a few months and stay over 40 it’s possible we just have an extended correction through time.
Snap on SNA is another one of those charts that has done nothing all year. One giant sideways. The bearish aspect of it is that in the July run-up it could not get over the spring high. I am inclined to think it tests the lower end of the range but mostly it just looks rangebound.
As the old saying goes, you want the good news first of the bad news first? Orion Engineered Carbons OEC tagged its downside measured target during this week’s collapse. That’s the good news. The bad news is that it is going to take an awful lot of base building for it to do more than rally back to whare it broke down from.
MPLX MPLX hasn’t done anything wrong but I’m not sure it’s done much right either. The stock is the same price it was in April. I can’t tell if it is building a top or just going sideways. If it breaks under 40 (the spike low from earlier in the week) I would get quite concerned because spike lows tend to hold on the first trip down there. So that would signal there is something quite weak coming.
