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Top Stocks With Helene Meisler

 Top Stocks

Volatility Is Not Going Away

BY Helene Meisler | 01/25/15 - 03:33 PM EST
Stocks in Focus: FXE, USO, LMT, UPS, JD

The Market

Note: My apologies for a shortened letter today. I was hit by a car on Saturday while out walking. I am fine, just banged up a bit. It is now Sunday morning and I already feel leaps and bounds better. It’s just a bit difficult to sit at my desk for long periods of time.

Friday’s action was actually what I expected we might have seen on Thursday. The selling was relatively light, especially in the small-caps. We haven’t broken the red line on the ratio of the Dow to the Russell, but it did turn down on Friday. If we are to be bullish for longer than the next week or so (until we get back to maximum overbought again), this really needs to break.

Elsewhere, the most extreme indicators on Friday arrived in all the put/call ratios. For example, the put/call ratio on the VIX soared to 206%. I had to go all the way back to 2011, and before that 2010, to find another reading that high (over 200%). I am sorry to report there is no conclusion on it. Some were bullish and some were bearish. It is best described by looking at this chart of the S&P from the fall of 2011. The high reading that arrived in late September, you can see, had one more up day and then a fast decline of 10%. The one that arrived a few weeks later in mid-October 2011 put us into a week of chop and then upward.

This high reading in the VIX put/call ratio gets added into the index and total readings, so they were quite high on Friday. Remember that a high put/call ratio on the VIX (or anything) is a big bet on the downside, so in this case someone is looking for the VIX to keep going down, which would imply he or she is looking for a rally in stocks. The bottom line is this is yet another very extreme reading in an indicator, something we have seen much of in the last few months. I think it indicates that volatility is not going away, despite the European QE announcement last week.

So, I think I’ll stick with the view that we are not yet overbought (we are clearly no longer oversold) and that I think we can have continued upside in fits and starts until we get overbought later this week. If the indicators are still bullish at that point, then we will reassess the rally.

New Ideas

I suspect the two charts folks will focus on this coming week, due to the Greek elections and the FOMC Meeting, are the euro and oil. Oh sure, they will watch the bonds, too. But in my view, it’s the euro and oil that are the market’s main focuses early in the week.

We looked at the CurrencyShares Euro ETF (FXE:NYSE) one week ago and I noted I thought it could rally perhaps as high as $116 before retreating again. It made it to $115 and then collapsed once more. I am not a fan of catching a falling knife, but in a market like this I do think it is once again oversold enough to have a bounce, especially when we start hearing calls for it to trade at parity to the U.S. dollar. But is the decline over? Doubtful. Initial resistance -- if it can rally -- will be at that $114 area.

Remember that a bounce in the euro generally means the dollar backs off.

Oil has become less of a focus for many folks because the stocks aren’t crashing anymore. But the commodity is teetering on the edge, as you can see from the chart of United States Oil (USO:NYSE), an ETF to be long oil. If this breaks (it is the equivalent of breaking about $45 on March crude oil) it doesn’t measure that far --probably to $16.50. But it could cause some panicking in the market and stocks.

Today’s Indicator

The Hi-Lo Indicator, by virtue of the fact that the new high list is expanding thanks to the Muni Bond Funds, is heading higher. That’s supportive of the market.

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:NYSE) has been making higher highs and higher lows, so it hasn’t done anything wrong, although I would prefer to see it break out over this $199-$200 area. If it can do that, then the next target would be around $210- $212.

UPS (UPS:NYSE) crashed and burned on Friday. I will admit after Thursday’s action the chart showed no signs of collapsing like that. There is a measured target around $100- $102, so if you want to bottom fish this name, then use the three-day rule where you wait until the third day after the plunge and, if it is still in that $100-$102 area, the stock can be bought for an oversold rally.

The chart of JD.com (JD:NYSE) is an interesting one because it does seem to be trying to bottom. There is not a clear breakout until it gets over $26, but you can see over $25 clears a downtrend line that has been in place for the last five months. I would use a stop under $23 and with any move up and over $26 we can then measure a first target of $28-$29.

Regards, Helene Meisler

The Market Is Still Oversold
Stocks in Focus: CMG, YELP, AEO, MONIF

But if the indicators don't improve over the next week, look for it to head back down in February.

01/22/15 - 06:51 PM EST
'Sell the News' ECB Reaction Would Be Best
Stocks in Focus: HAL, VGK, IRWD, DVN, XLE

A pullback would shake out weak holders and produce better-looking charts.

01/21/15 - 06:31 PM EST

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