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Top Stocks With Helene Meisler

How an Overbought Market Became an Elephant in the Room

By Helene Meisler | 04/28/16 - 07:09 PM EDT
Stocks in Focus: LMT, RTN, GD, WFM

The Market

Folks want to assign blame to anything and everything regarding the market’s decline today. If you think it was the Bank of Japan’s lack of further easing policies, then I would ask why it was that the market shrugged it off and rallied from the minute the market opened?

If you think it was Carl Icahn coming on CNBC to tell us he sold Apple, then I would ask why that discussion about one stock would matter today when it had been beaten up for several days now?

I can’t say exactly what it was that turned the market, but I know the signs have been there for several weeks. The market has been overbought—and with the Oscillator at a lower high. In mid-March, the number of NYSE stocks reaching new highs was the largest number that I’ve ever managed to see. So, it’s been six weeks of fewer new highs. And let’s not forget that the Nasdaq is down handily in the month of April. If it cannot rally 70 points on Friday, then it will be a down month. Why isn’t anyone discussing this? I think they are not discussing it because of all the complacency that is out there.

And I continue to see it. The four-week moving average of bears in the American Association of Individual Investors’ poll has fallen like a rock. If that’s not enough for you, then what about that put/call ratio on the VIX yesterday? Someone is obviously placing a very large bet that volatility will go down, not up. So, it’s not one thing that tipped us, but several. And these things have been building for weeks.

Yet, for such a big down day of 1%, breadth was not terrible. For example, yesterday with the S&P up three points, net breadth on the NYSE was plus 1220. Today, with the S&P down 20 points, net breadth was -975. That adds up to a net loss of 17 points for the S&P and breadth was positive by about 250 issues.

However, something is a bit different in the market today. A lot of stocks that were up big yesterday gave it all back today. I have not seen that since the January to February period. I believe corrections are healthy, and it serves as a way for the market to reset itself. But, when all that trash was rallying early today, it told me that it was a case of traders running amok. I’d like to think the correction is not yet over, but with the exception of the Nasdaq in April, I have been proven wrong this month.

The S&P has shown resilience by not breaking under this 2075 area, since it exceeded that point three weeks ago. If this breaks, it changes the pattern.

Note: I am speaking at the National Association of Active Investment Managers (NAAIM) Conference on Monday morning. There will be no Letter this weekend, nor Monday evening. I’ll be back at my desk Tuesday.

New Ideas

Whole Foods Market (WFM) has been trying to form a bottom for months now. I’ve looked at this chart several times of late, with that same note. It has not been able to lift itself up off the mat. There was quite a pickup in volume today though, so I wanted to highlight it once again. I’d prefer that it does not break under $29.

Today’s Indicator

The 10-day moving average of the put/call ratio is finally turning upward (bearish for stocks).

Q&A

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.

Lockheed Martin (LMT) has been terrific and hasn’t done a thing wrong. The issue is that it has a measured target of around $240, so it’s awfully close to it.

Raytheon (RTN) had a nice breakout yesterday. I don’t like that it’s giving so much back today, but if it can stay over $125 then it has a chance at a measured target of around $136. Be careful of charts that breakout and then retreat. It often means that the rally was shorts covering and not new buyers, thus there can be little support to buy the stock on the retreat.

General Dynamics (GD) has made its first higher high in almost a year. I consider that a positive. I’d love to see it consolidate in this $140 to $144 area, before it makes another move higher. There is a measured target in the $150 to $155 area. I will say I am surprised that these high-priced stocks don’t have higher targets, but I just do the math and this is what came up.

Regards, Helene Meisler

Breadth is Again Breathlessly Good
Stocks in Focus: PM, CF, TLT, CYBR

Despite the Nasdaq’s decline for so much of the day, breadth was impressive

04/27/16 - 07:26 PM EDT
Why an Upside Down Market Chart Makes Sense
Stocks in Focus: FXI, LNG, TK, AAPL, XLE, QQQ

The only way to view this market is as an inverse of 2015.

04/26/16 - 07:04 PM EDT

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Chart of I:DJI
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