Remember in the spring when momentum stocks and small-caps
did nothing but go down? And yet the S&P 500 sat
there like a queen bee, totally unaffected? This market
seems like the inverse without the violence.
Ever since the small-caps got moderately oversold a few days
ago, they have milled around. I’d call it a rally, but I am
not sure we can consider a 7-point rally more than a respite
from the selling. However, two trading days ago (Monday),
the low on the S&P was 1967, and today’s low was 1962. On
Monday, there were 60 stocks making new lows, and today
there were 55. That is the first sign we have seen of a
positive divergence and the first time we have seen -- in
the month of July -- a respite from the selling.
In the spring, the S&P mostly churned with an upward bias
after that initial selloff, while the small-caps and
Nasdaq continued to get pounded. Now we have the
small-caps and Nasdaq holding and having an upward bias
while the big-caps aren't necessarily getting pounded but
they do not get the love they were once getting. There has
been a lot of selling in these names.
Yet all we see is one giant game of group rotation. Two
weeks ago, 1985 was the battleground, and we could not get
through on the upside without dribbling over the line and
stalling. Now 1970 is the battleground, and we cannot get
through on the downside for more than a dribble.
There are simply too many big-cap stocks that do not act
well. There are too many big-cap stocks that have gapped
down and are now broken. Just consider that NYSE
breadth made a lower low today, compared with the July 17
low, and it has now been red for five days in a row. It has
been almost one year (last August) since we’ve seen so many
red days of breadth in a row. Oh, sure, the S&P may be down
only 1%, but many individual names are sinking like stones.
The good news from today’s action is that the above-
mentioned new lows are contracting. In addition, the
put/call ratio for exchange-traded funds (ETFs) zoomed up
over 200%, and that means there was some short-term panic.
The Fear and Greed Index ticked at 20 intraday, but by day’s
end it had lifted toward the upper 20s. Again, it’s a save.
The market feels quite fragile when so many stocks go down
and the indices hold up. Typically that ends with the index
following the stocks down. In this market, that has not been
the case; in this market the index selling just dries up,
and then we go up again. Maybe this time it will change. For
now, the small-caps are the oversold ones.
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The retailers have been just plain awful all year. The chart
of the SPDR S&P Retail ETF (XRT), an ETF to be long
retailers, really doesn’t show how much so many of these
names are down this year. But the hallmark of this market
has been to discover the group that is down and out that
everyone hates and rally it.
In the past week I have noted a few retailers that are
perking up. Ulta Salon (ULTA:Nasdaq), Target
(TGT:NYSE), Wal-Mart (WMT:NYSE) and TJX
(TJX:NYSE) all come to mind. I have liked Coach
(COH:NYSE) as a bottom-fish candidate since now even the
value players don’t like it. Yet there is a teensy-weensy
head-and-shoulders bottom forming here. Because this stock
is so hated and the market is so fragile, I would not give
it a lot of leeway, so the stop is at $34. Over $36, we
would have a whole new ballgame with a target near $38, up
almost 10% from here.
For those of you who prefer stocks that are not down and out
and have no resistance at all overhead, perhaps Nike
(NKE:NYSE) interests you, since over $80 there is nothing in
the way, and the target measures to $88-$90, also about 10%.
I would make one more comment on retailers: The price of
gasoline has come down quite a bit. In my area it's down
from $3.80 to $3.20 in the last month. And aren't we going
into what typically is a strong season for retail stocks?
I would also reiterate that I am not a fan of the oil stocks
here. Like the semis, they are over-owned and over-loved.
The Market Vectors Oil Services ETF (OIH:NYSE) has
support here at $55. A break of $55 would complete the small
top that is in place as it measures to $52-ish.
The volume indicator is heading toward an oversold
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The CurrencyShares Euro ETF (FXE:NYSE), an exchange-
traded fund to be long the euro and short the dollar, has a
measured target around $129.50. In the near term, we see a
spike low right near today’s low that suggests a near-term
bounce is likely. If it manages a rally back to $133-ish,
I’d sell it there.
Zoetis (ZTS:NYSE) had a breakout back in early June
when it crossed that downtrend line. This would give it a
measured target in the $36-ish area. So unless this breaks
the recent lows of $32, I would look for it to eventually
make its way up there.
I am a sucker for a down-and-out stock that is building a
base, and Urban Outfitters (URBN:Nasdaq) falls smack
into that category. I think it is somewhat overextended in
the near term, but I would love to see it get up to $37-ish
and then consolidate before breaking out. If I have to
guess, I would say this is about 60% to 70% through the
base, so this has some time to do some more work.
If you are looking for a retailer, do look at Ulta
Salon (ULTA:Nasdaq), which was shown here last week; it’s a base.
This prolonged negative breadth is likely to move stocks into stronger hands.
Breadth is negative, but the indices stay above key levels.
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