This was quite an interesting day. We had some real
selling going on and some sporadic buying, but mostly we
did get some selling for the first time. How can I tell?
Volume increased in the sell-side names.
Obviously, the Russell was the worst of the indexes, with
its decline breaking under an uptrend line. We have
already discussed the lack of participation in the
Russell as well as the 1275 target area, so I was not
surprised to see it back off, but I was surprised at the
violence with which it occurred. However, it did manage
to hold at the previous lows (thin line).
If iShares Russell 2000 ETF (IWM) breaks $124-ish
(this thin line), that will be a divergence from the
playbook that has been in place since February. As you
can see, despite breaking the uptrend line today the
selloffs have all made higher lows, so a break of the
previous would signal a change in the market. And my
guess would also herald in a lot of chatter about "sell
Now, I realize everyone will focus on the Russell move
and tomorrow the Apple (AAPL) action, but please
note that despite AAPL being up today, Nasdaq also
had an outside reversal day. There was nothing broken on
this chart (no lines broken, no support broken), but
recall the upper trend line I've drawn in for the past
few days that came in around 5120 and note today's high
was about 17 cents shy of that figure. In other words,
the line worked again.
If there is any follow-through in this selling, it will
be a change. I did not detect any panic in the options
numbers; the total put/call ratio was 88%, which is
actually quite low for a down day lately. The only
potential positive in these readings was that the
put/call ratio for the VIX was 22%. A reading under 20%
has been positive in the past, so this came close.
Tomorrow is the day before the Fed meeting on
Wednesday, which has typically been a green day. Again,
let's see if that pattern changes. Right now the breakout
on the S&P chart has the potential for it to be a fake-
out, but we would need to see follow-through selling to
change that pattern.
While I obviously don't love the market much up here, my
eye keeps catching on the chart of BorgWarner
(BWA) because this does seem to be a flag or
consolidation after that February run-up. It would need
to clear that $62-$63 area to take on another leg, but as
long as it stays over $60 I think it has a chance. Heck,
if they can run the Cummins Engine (CMI) that we
looked at last week on a day like today, maybe they can
rotate into these cyclicals.
The flip side is Home Depot (HD). This might be
the third time I am harping on this name, but no one
seems concerned over the retailers yet. It continues to
test this $111-$112 area, and any break of it, I think,
sends the longs running since it would break the uptrend
line and the flat support line at the same time. I also
think it is over-owned. I'd use a tight stop at $112.50-
Everyone is focused on biotech today, but I have my eye
on UnitedHealth (UNH). There is no break here yet
and it's hard for me to imagine it will crack under $115
unless the market cracks, too, but like so many of these
DJIA stocks, I think this shows the beginning
signs of distribution.
The 30-day moving average of the a/d line is still in the
middle of nowhere but leans toward overbought.
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Having not been a fan of the airlines in quite some time,
my initial thought was that I was going to hate the chart
of Spirit Airlines (SAVE), but in fact there is
nothing to like, nor is there anything to hate. It is
smack in the middle of a triangle. However, if the stock
can hold this $77 area for a few more days -- in other
words, if today's reversal has no follow-through -- then
I might find I actually like the chart for a rally. If it
breaks under that general area, I'd be more likely to say
it remains in the range.
Because the steel stocks have been so good and
ArcelorMittal (MT) from last week is up almost 10%
since we looked at the chart, I was asked about
Nucor (NUE). NUE has been a favorite of mine for
quite some time -- and it's been a terrible call to have
since the stock cannot seem to get up and over $49 no
matter how much I will it up there. It is going to need
to clear $50 if it is ever going to get any traction. A
stop is quite far away at $46. I'm a bit lukewarm on it
right now (which is probably good for the bulls!).
WisdomTree Germany Hedged Equity Fund (DXGE) is an
ETF with a currency hedge to own the German DAX. Over the
last few months, we have looked at WisdomTree
Trust (HEDJ), which had an upside measured target of
$67 to $68, but I preferred Vanguard European Stock
Index Fund (VGK) since it doesn't have the currency
hedge. In other words, if the euro is uninvolved, the
chart now looks much better, thus I prefer VGK, but even
there the target is around $60.
For DXGE, I keep eyeing this (and the DAX) for the sign
this is a head-and-shoulders top. As long as this stays
under $32, that is how I will view it.
The selling actually remains subdued.
Is the chop finally over? We still don't know.
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