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Top Stocks With Helene Meisler

 Top Stocks

The Negatives Remain

BY Helene Meisler | 09/22/14 - 09:05 AM EDT
Stocks in Focus: DDD, VMW, AWAY, EEM, CEF, GLOG

The Market

It will not surprise you that my list of market negatives remains, and that it has expanded in some cases. It might also not surprise you that the S&P 500 stopped right at that trendline I had drawn in on that chart.

The most bullish factor for the market right now is just about everyone seems to have noticed the poor breadth and the disintegrating internals. In fact, it’s not just anecdotal, because the put-call ratio on the CBOE Volatility Index (VIX) sank to 11% on Friday. That means an awful lot of folks are betting on a higher VIX and a lower market. You might recall that, when the VIX put-call sinks under 20%, the market tends to prove them wrong and rally.

A reader asked how the market typically resolves itself when there are this many negative market internals. The answer is that the S&P usually catches up on the downside. Yet, in this current market environment, the only index that seems to go down is the Russell 2000. The good news is that the ratio of the S&P to the Russell finally made it above 1.75. But that alone does not constitute a buy signal. What it does is tell us that, if we also see positive divergences and the upward reversals in the intermediate-term indicators, the Russell will have a very good chance of putting in an intermediate-term bottom. That would make it unlike all the other Russell lows we saw this year, because each of those other instances failed to coincide with such an extreme level in the ratio.

The most interesting chart I came across this weekend was that of the ratio between the S&P to the Nasdaq. We all focus so much on the S&P-Russell ratio, but I rarely see anyone discuss this particular relationship. What struck me was how similar the pattern looks on the S&P-Nasdaq now vs. what we saw in March.

S&P 500 vs. Nasdaq Ratio

As you might recall, the market corrected then -- or, shall I say, the Nasdaq and the momentum stocks corrected back then, as you can see on the Nasdaq chart below.

Nasdaq

With the increase in stocks making new lows, it seems to me that the tax-loss-selling period has started relatively early this year. We’ll keep our eyes on the internal statistics for signs of positive divergences now that the S&P-Russell ratio has pushed up over that “magical” 1.75 area. In a perfect world we would see a few more down days in the Russell, perhaps with maximum hatred toward these poor small-caps and lots of chatter about the “death cross” -- that is, the 50 day moving average, sinking under the 200-day moving average. Ideally, that would be followed by an oversold bounce, and then a retest with positive divergences.

I am going to hope for my perfect world to come to fruition. But we all know that, in the market, “hope” is a four-letter word.

New Ideas

Typically I like these sorts of down-and-out charts, such as 3D Systems (DDD), but nowadays charts like these have broken to the downside more often than they have broken upward. If the stock can’t hold this $47.50 area, I’ll be able to measure a target into the $40 area.

3D Systems (DDD) -- Daily

VMware (VMW) is another chart that typically would find me searching for a bottom but, again, these days, charts like these are going down even more frequently. If we see a break of $93, I will be able to measure another $10 on the downside!

VMware (VMW) -- Daily

A reader asked me to follow up on HomeAway (AWAY), a chart I had posted in the middle of last week as positive. While I would have preferred the stock to get above $34 and keep on running, it is still a good chart and continues to show signs of bottoming. I expect the next stop on the upside to be in that $36-to-$37 area. A close under $33.75 would have me concerned.

HomeAway (AWAY) -- Daily

Today’s Indicator

The number of stocks making new lows continues to expand. What is so curious is that it typically does this when the market goes down, not up. That shows you how bad the internals of the market are.

Number of NYSE Stocks at New Lows

There is one bit of good news in this. As long as new lows don’t get significantly worse, the Hi-Lo Indicator ought to stop going down, and it should curl upward toward the end of the week.

Q&A

I’ll start with the follow-up a reader asked me to do on iShares MSCI Emerging Markets (EEM). When we last checked in on this ETF, I had expected a bounce to resistance, but that was it. The chart has now formed a head-and-shoulders top. If we see a break of this $43.25 area, we’ll get a measured target down near $40-ish. Oh my, now that might cause some panic in the market.

iShares MSCI Emerging Markets (EEM) -- Daily

Central Fund of Canada (CEF) is a perfect example of a chart that is -- or was -- down and out. It should have attempted to hold at the previous lows, and instead it slipped through like a hot knife through butter. The chart measures to around the $11-to-$11.25 area. The best news for Central Fund of Canada is that the move is becoming fast and furious, and is not of a dripping nature any longer. Fast-and-furious tends to lead to capitulation.

Central Fund of Canada (CEF) -- Daily

GasLog (GLOG) is a stock I have never heard of. I’ll admit that, when I saw the name, all I could think of was the Yule Log they used to show on television at Christmastime! But I love that the stock punched up through this downtrend line on Friday. There is a tiny head-and-shoulders pattern that measures only to $27, and you can see there is resistance starting there up to $28, so I would look for a move up there. I would not want to see it pull back under $25, though.

GasLog (GLOG) -- Daily

Regards, Helene Meisler

Watch the S&P 500 Level
Stocks in Focus: GOOG, GOOGL, FCX, AEGR, AMZN

The key is to see if it can push through the resistance line that has held up for nearly three months now.

09/18/14 - 07:33 PM EDT
The Dollar Was the Real Story of the Day
Stocks in Focus: EWG, GIS, POT, AWAY

There seemed to be no solid reason for it to have rallied as much as it did, but it refuses to back off.

09/17/14 - 06:46 PM EDT

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