There was a lot of confusion today among folks. Some thought
the morning collapse was the perfect buying opportunity,
while others were aghast that folks would opt to buy this
dip. Before we get to the statistics and indicators for the
day (which showed the confusion), I want to revisit the
ussion from last evening.
Last night we looked at the chart of Facebook
(FB:NYSE). We discussed that the chart broke the uptrend
line and is desperately trying to recapture it. This is a
two-step process. The first step is, can it hold Tuesday’s
low near $62? So far for today, that’s a yes. The second
step is, can it get back over the line? For today -- and
yesterday -- that's a no.
Is it possible that the selling will dry up but there are no
incremental new buyers? Absolutely. That’s why I noted it
was possible that Facebook just managed to now go into a
trading range between $62 and $66 (use "ishes" with that).
To recapture that line at $66 and stay over it would be
bullish. But to trade under it would not be.
That's what we saw a lot of today: stocks that refused to
break Tuesday’s low (bullish) but refused to get back over
the resistance (bearish). Let's call it part of the
correction. After all, Facebook is down 10% already. Do you
expect it will just collapse from here? That is not
realistic. It did not surge in a straight line. Look at that
chart. Did it surge? No. It spent six weeks trading between
$56 and $64. While we all want instant gratification, we
don't always get it.
Keep in mind that the iShares Nasdaq Biotechnology
(IBB:Nasdaq) did the same thing: It refused to break down to
a lower low but could not get back up over the line. If you
fall down a flight of stairs, you might not be so willing --
or able -- to get back on that staircase and run to the top.
You might instead stumble around, groping at the banister,
falling back a few steps, climbing a few steps, and so on.
Stocks generally are no different.
As for today’s indicators, they were a mixed bag. For
example, the Russell 2000 came down and bounced off its 50-
day moving average, which was also the 50% retracement level
of its recent rally. The Dow Transports saw no selling.
Mostly the Dow Jones Industrial Average and big-cap
stocks saw very little selling as well.
The ISE Equity call/put ratio zipped up over 200%, which is
bearish. But the CBOE’s equity put/call ratio was the
highest it has been since the May lows, and the put/call
ratio for exchange-traded funds (ETFs) was over 200% for the
third time in four days. Those are bullish for the short
Yet the 10-day moving average of the put/call ratio is now
at a higher high and the highest it has been since the fall
of 2012. The 30-day moving average of the equity put/call
ratio has finally hooked up, although it is not terribly
easy to see with the naked eye. The charts are shown below.
The number of stocks making new lows, while not a high
reading on its own at 32, is the highest reading we have
seen since the May lows. It stands out on the chart, as you
can see. Typically a high reading needs to be retested at
In sum, I think we are still in the midst of a correction.
Perhaps it will play out with more selling, or it will play
out as described using the Facebook chart above, by going
sideways. I believe it is simply too soon to get a decent
rally that is going to be long-lasting right now.
Read Helene's latest column
I was asked about the reversal in Pandora (P:NYSE)
today, since it did close over the line and in the green. It
does look oversold. The one thing that should concern you,
though, is if it works off the oversold reading by churning
at $26. So if it can lift itself up, then I do believe it
can enjoy a rally back into the $28-ish area, but my stop
would be $25, and if it moves up quickly, that stop would be
moved up accordingly as well.
The put/call ratio is discussed above. Here are the two
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I was asked to do an update on the SPDR Gold Shares
(GLD:NYSE), which you might recall I think is a bottom. It
has completed the head-and-shoulders bottom . I am not
particularly fond of the way it traded today, moving toward
the low of the day. However, if GLD can now just mill around
in this $128-ish area, I believe it can regroup and rally
again. On a longer-term basis, I would not want to see this
push back under $126 and stay there.
I have been willing to give Citigroup (C:NYSE) a
chance for what seems like forever, and it keeps
disappointing me. Today it broke down out of the triangle it
has been in for months, and it's trying to claw its way
back. This chart, while it looks different, is similar to
the Facebook and iShares Nasdaq Biotechnology charts we
looked at last evening: They get a chance to get back over
the line, but not for long, and a failure to recapture the
line after a few days would be bearish.
The last time we checked in on Potash (POT:NYSE)
about a month ago, I was looking for a
bounce off of $35, but I thought it would come back down
after that bounce. The problem is that I did not think the
bounce would take it to a higher high, so I was wrong in
that assessment. My sense is that Potash will bounce off the
line again ($35-ish), but it is still not ready to launch a
decent push upward in my view. I like to see "W" patterns or
panic at the lows. Thus far, this shows neither.
We're unlikely to see a replay of the spring's momentum-stock breakdown.
And cue the momentum stocks.
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