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.
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.
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
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
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)
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
VMware (VMW) --
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.
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
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.
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) --
The key is to see if it can push through the resistance line that has held up for nearly three months now.
There seemed to be no solid reason for it to have rallied as much as it did, but it refuses to back off.
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