I have so many conflicting indicators I don’t even know where
For example, the American Association of Individual Investors
and the Investors Intelligence readings both say we should
rally some more, or at least attempt to, just to turn
sentiment from the soured side of things.
The one-day Equity put/call ratio two days ago at 50% said we
should pull back because folks had gotten too giddy. So, we
pull back on Friday, a mere five points in the S&P, and
already the put/call ratio zooms right back up to 111% (Equity
ratio goes to 68%).
Then we have the ISE Equity ratio, which on Wednesday chimed
in at a too-exuberant reading over 200%, telling us we were
overheated. Then Thursday and Friday we see consecutive
readings under 100%. That’s where some of the confusion
arises. On an intermediate-term basis back-to-back readings
under 100% have been bullish a few weeks out in time. On a
short-term basis, they have often led to high volatility
Then there is the overall breadth of the market. As we know it
has been a horror show since April. A few weeks ago folks
finally woke up and noticed how poorly the overall stocks of
the market, as opposed to the indexes, had been acting. Now
everyone, except maybe my mother, has noticed it. Yet in the
last week breadth performed rather admirably. Do not get me
wrong, in the big picture it is still pretty pathetic, but the
overall readings this past week were some of the best we’ve
seen in a while, especially considering Thursday’s flat day
and Friday’s down day resulted in positive breadth for the
Yet we’ve now had four positive breadth days in a row and the
McClellan Summation Index has barely lifted itself off the
ground. One or two poor breadth days and it will turn right
back down again.
The number of stocks making new lows peaked at nearly 500 on
the NYSE last Monday, an extreme that has not yet been
retested. Yet the number of stocks making new lows has not
begun increasing as it did in early July. At least as of
Friday it hadn’t. And the Hi-Lo Indicator looks set to turn
back up, without ever getting down to under 15%.
Then there is Nasdaq, where the index doesn’t show the same
weariness that the S&P does but the underlying statistics are
equally poor in terms of breadth and the Summation Index, as
well as stocks making new highs and new lows.
In sum, I believe we’ve had, or are having, an oversold rally.
I believe when this oversold rally is done we are likely to
come back down again. The timing at this point looks to me as
if it could be toward the end of this week/early next week. In
other words, if we still have no improvement in the statistics
by the latter part of this week, then we are likely to come
right back down again.
Let me end with a note on a statistic that I do not keep nor
do I have any history on, but thought it interesting enough to
pass on. Managed commodity funds were net sellers last week
(no surprise there) but it turns out this was the most selling
they had done since mid-March. If we just take a quick glance
at the chart of Energy Select SPDR ETF (XLE:NYSE), a
chart we discussed here Thursday evening, we see that is
exactly when it made a low. For those who had asked, this is
obviously a point in time where this needs to hold. Perhaps
this turns out to be good news for the oils.
I want to follow up on the chart of Goldman Sachs
(GS:NYSE), which we looked at in early July. I didn’t think it
was bearish then, just that it was likely stuck in the camp of
going nowhere. It enjoyed a rally back to the underside of the
broken uptrend line and has since come down to the early July
lows with nary a bounce. A break of this $203-$204 level would
have a measuring implication over the next few months of near
I also want to follow up on Lowe’s (LOW:NYSE), which we
looked at about a week ago. I was wrong to be so negative on
it. While I still much prefer Home Depot (HD:NYSE) as a
chart, LOW did manage to save itself and rally a few bucks,
removing some of the sense of an imminent breakdown. The
resistance overhead at $71 still looms large, whereas HD’s
chart is more a matter of whether or not it can do a nice job
of consolidating the recent gains and hold on to this $114-
$116 area now that it has cleared it.
The Hi-Lo Indicator should turn up this week.
We have looked at the SOX before, especially as it relates to
the Nasdaq Composite since, with the ratio at .125, we
typically see a bottom in the semis. Yet the rally in the
semis has been rather tepid, hasn’t it? The iShares PHLX
Semiconductor ETF (SOXX:Nasdaq) had a downside measured target
around $85, so it has that going in its favor. It was a spike
low, so it probably needs to be tested at some point,
especially since it hasn’t made a higher high (over $91 would
be a higher high). Then there is all that resistance that
comes in at $91-$93. I am inclined to see if it can build a
base in the coming weeks. Perhaps that spike low will turn out
to be the head of a small head-and-shoulders bottom.
Last fall I liked the chart of Jabil Circuits
(JBL:NYSE) with a target of $24-4$25, but this year has been a
horror show for the stock since it broke that uptrend line on
a gap. Like the chart of the SOXX above, I’d like to see it do
some work and build a base before I sound any sort of all
clear on it. Even if we look at the October low last year at
1$8, it was tested in December at $19.50. I’d much prefer to
see that sort of action, a pattern of higher lows, before
guessing if this was it. But as you can see, the rally shows
much more promise than the mid-July rally, which was
essentially non-existent on the chart. I’m interested now. I
wasn’t in early July.
On a short-term basis, I see an awful lot of resistance at
$62-$63 on SolarCity (SCTY:Nasdaq). On an intermediate-
term basis, this looks like a base to me. So, if your time
horizon is longer than a few weeks, this chart is relatively
interesting as long as it stays over $52 and then can
eventually break out over that resistance line. In other
words, it looks like it needs some time to eat through the
resistance, but should do it eventually.
Give it another week, but there will likely be dips to buy.
Make no mistake, market is still oversold.
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