I do not know what to make of the day except to note that at
least the market pulled back!
Let me begin with sentiment. The American Association of
Individual Investors' weekly survey showed a jump in bulls
to 52%. That is the highest reading since Christmas week.
One week later, we saw a market peak and down we went. I
should note that typically, unless we see a "confirmation"
from the Investors Intelligence readings, I tend to consider
the AAII readings rather lightly since they tend to jump
around like day traders. That said, this indicator now moves
to the bearish side of the ledger.
If you would prefer to offset all that bullishness (in a
poll that closes on Tuesday evening, released on Thursday
morning) then let's just explore the explosion in put-buying
that occurred today. The put/call ratio for ETFs was an eye-
popping 390% -- I will wait while you get up off the floor.
I did look back at other previous extraordinary put/call
ratios for this category and there were five in the last
five years. Three were lows in the market and two were not
as we fell farther. Upon closer inspection, the two
instances that were not lows were not accompanied by a total
put/call ratio that was super high.
You see, the total put/call ratio today was 130%, so it was
accompanied by a high total put/call ratio. To put that in
perspective, the last time we had such a high reading was
Oct. 9, 2013. So none of the declines this year got folks as
eager to buy puts as today did. Prior to that we saw a
reading this high in the total put/call ratio (of 139%) on
June 20, 2013, also a low in the market.
I will tell you my conclusion: This is one nervous market.
The market continues to be overbought. It continues to have
fewer stocks making new highs and now, due to this
incredibly high put/call ratio, the 10-day moving average of
the put/call ratio has turned back up (bearish). The chart
We also continue to have the intermediate-term indicators
pointing upward. So, for now, I will sound like the broken
record I have been for a week: Expect a pullback and then
another rally sometime after Labor Day.
The one question that has started to litter my inbox I will
try and address this weekend: Do I expect the intermediate-
term indicators to make higher highs before they turn down?
The preview answer is no, I do not; they are simply too far
Have a great Labor Day weekend!
I was asked to look at the Market Vectors Oil Services
ETF (OIH) since as you may recall I have not been a fan
of the oil or oil-services names since June. Notice that
some of the oil stocks are improving. Last week I showed
Continental Resources (CLR), which actually had a
terrific week, and below you will see some other energy
names. But the chart of Halliburton (HAL) is not
good. A break from here sets up a next target near $64 and
maybe even near $61.
The put/call ratio is discussed in full above.
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Marathon Oil (MRO) hasn't done anything wrong and the
uptrend is still intact. I can calculate a measured target
around $41 to $42, so I'm not sure how much more oomph it
has left without a proper correction, so I'd call it a hold
unless and until it breaks that uptrend line.
If I were playing something in the oil patch, I would
probably go back to Ensco (ESV), which we looked at
when it was $48 a few weeks ago and we liked it. It has
since had a nice rally and a nice pullback (this is what a
pullback should look like). The next serious resistance is
up in the $53 area. I would not want to see it break back
Nimble Storage (NMBL) has not had a good few days but
it hasn't broken anything. I look at the chart and see it's
in a trading range between $25 and $31. Very little seems
actionable except that tomorrow would be the third day down,
so if it doesn't break $25 before then, it ought to have a
rally attempt next week.
EnCana (ECA) has had a nice little breakout in the
last week from a small head-and-shoulders bottom. It
measures to $23.50, which isn't that far away. My
inclination is to believe it is getting overbought, so I
would prefer to buy a dip or a consolidation, especially if
it dips back to the line around $22. I think it works its
way higher over time.
A string of positive-volume days on Nasdaq tells the story.
If the market would just pull back, it probably sets up the charts for upside.
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