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Top Stocks With Helene Meisler

 Top Stocks

The Timing of a Retest

BY Helene Meisler | 10/23/14 - 07:44 PM EDT
Stocks in Focus: AAPL, SNDK, IBM, WFM

The Market

Many folks seemed to feel that today’s rally was a surprise, after yesterday’s pullback. If you thought a 15-point pullback after a 100-point rally was significant, you are watching too closely.

The volatility we have seen the last few weeks might seem unprecedented, but please go back and look at August-through-October in 2011, or the fall of 2008. Markets always feel too volatile when they have gone through an extended period of a lack of volatility, and then the volatility arrives.

Volatility rarely dies quickly. More often than not, it gradually dissipates. As I noted last night, I still expect volatility, but I see it easing up in the next few weeks. If the Fed does not implement yet another QE program, we can expect elevated levels of volatility. After all, did you think the last two years were normal, with a market that just kept on grinding higher with no corrections?

Since we already know that the intermediate-term indicators have reached grossly oversold levels, I will not review them again this evening. However, someone asked me about the timing of a retest, so I will address that. Typically, a retest occurs when complacency returns to the markets. A retest is possible as long as volatility exists, but more often than not, a retest occurs when folks stop looking for it.

My Oscillator shows that the market will be short-term overbought again early next week. The 50-day moving average lines lie overhead, acting as resistance. Let’s plot out a possible scenario. Last night, we looked at a potential head-and-shoulders bottom on the Russell 2000. Today, let’s see what the S&P 500 chart tells us about that pattern.

All that resistance around 1,970 on the chart is not far away. The 50-day moving average is around 1,965. What if the market churns a bit higher in the next few days, leading toward the overbought condition, and then pulls back next week to give us the right shoulder of a head-and-shoulders bottom?

One thing I like about this particular scenario is that the downtrend line that has been crossed today would lie in the same area of a right shoulder, on the retest of the line. There are too few charts that look decent. In fact, it is hard to find good-looking charts. That tells us there is more work to be done in terms of backing and filling.

New Ideas

Since this market is still so difficult, I want to take a look at a stock that had tanked six months ago and has spent the last six months attempting to build a base.

Whole Foods (WFM) had a price target around $37 when it gapped down in May, but just reaching the target doesn’t make it buyable. This is the price area we should start to hold. WFM has now spent the last six months trading between $36 and $40.

The stock did not make a lower low last week; in fact, there was hardly any selling. That is how a stock gets sold out and goes from weak hands to strong hands. Eventually, WFM will get up and over that $40 area. Until it does, this is what base-building looks like: dull moves back and forth. I would consider myself wrong, should WFM drop below $36.

Today’s Indicator

The 10-day moving average of the put/call ratio has not yet rolled over. However, starting tomorrow, we drop a long string of readings over 100%. It ought to see a rolling-over in the next several days.

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.

When I last checked in on Apple (AAPL), I had this uptrend line drawn in and wanted it to break and tag $95 (support). Shockingly, it did exactly that while I was gone. When stocks have false breakdowns and then break out in the other direction, there are no rules for those patterns. So I will note that there is an unfulfilled target around $107-$110 on the stock now.

Sandisk (SNDK) is a tough call, because it did bounce right off the longer-term uptrend line, but it has so much resistance overhead in this $90 area (as well as a gap to fill there). If it can get up and over $90, it takes away a lot of the uncertainty in the chart, and it will make last week’s plunge look like the head of a head-and-shoulders bottom. The price must get up and over $90 to make me more positive on the chart.

When we last checked in on International Business Machines (IBM), I had noted that a break would give it a target around $160-$165, and it has moved into this area. That does not make it a good chart now. All it says is that it has reached its first measured target area. Any rally back to resistance near $170 would be a price level at which to sell this stock again.

Regards, Helene Meisler

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