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Top Stocks With Helene Meisler

 Top Stocks

Ripe for an Oversold Rally

BY Helene Meisler | 04/15/14 - 07:53 PM EDT

The Market

Now that is what I was looking for! OK, I did not get a jumpy Market Volatility Index (VIX) or a positive divergence in stocks at new lows. So this is not the kind of low that is long-lasting, nor is it an intermediate-term low. But there was a vast difference between the market of today vs. that of the last few days.

Let me describe the difference by beginning with an anecdotal observation. My concern Monday morning (aside from my indicators needing more downside) was that we were gapping up on the open. Typically, traders tell us to never trust a Monday morning gap up opening, yet no one was saying it. They were all too busy patting themselves on the back for being ready for the rally.

Then in today's downside crunch, when the Nasdaq was down more than 70 points, I saw absolutely no one willing to step up to the plate. This is what happens when you keep trying to play an oversold bounce too soon. Too many folks today were tired of trying to catch the falling knife. And thus we managed a heckuva rally. Moreover, it was the first day we have reversed from the lows and closed near the highs, so it was a true reversal.

It also arrives with the right date, as this is now the time frame in which the Nasdaq Momentum Indicator starts to rise. In addition, the Fear and Greed Indicator went down to 16 intraday and closed at only 21. The total put/call ratio closed at a relatively high 97%.

In terms of statistics, there was another difference. Yesterday, the Nasdaq's net volume was a rather unimpressive +257 million shares, with the index up 22 on the day. Today, when the index was up "only" 11, net volume was +331 million shares. So while still not the most impressive statistic, it was better than yesterday.

Finally, while many of these momentum stocks have hardly made lower lows, they now have small little bottoms forming -- the kind that lead to oversold rallies. Their charts look different today. Some look like they had a retest.

So why don't I think this is a great intermediate-term low? Let us start with last evening's discussion of the Nasdaq McClellan Summation Index. Next, the increase in stocks at new lows means we need a retest at some point. The Hi-Lo Indicator is still pushing down, so it has not yet reached an extreme.

To this I can add that the Russell 2000 continues to lag; notice it tacked on a mere 3 points today. Sure, it was down 17 at one point, so the rally was impressive. But a few months ago the index would have led to the upside and now it is falling behind.

So the bottom line is that the time is now ripe to get an oversold rally. It likely will not be an easy ride, but it should take us higher, perhaps toward the end of the month. The S&P 500 has that resistance at 1850 we discussed, but my sense is we ought to get through it with some fits and starts.

Read Helene's latest column here.

New Ideas

Just a reminder that we are in the heart of earnings season, so please check for earnings releases first.

LinkedIn (LNKD:NYSE) is a great example of a momentum stock that had a decent retest. Notice that today's low was a higher low. A move through that downtrend line (around $172) completes a downtrend that has been in place since mid-March. If we get the kind of oversold rally I envision, this should make it to the $180-$185 area.

Beloved Facebook (FB:Nasdaq) also refused to make a lower low. Now a move over $60 should improve the stock by crossing that downtrend line. There is still resistance from those twin spikes at $62.50-$63. But if it can cross the downtrend line, give it a chance at improving.

Finally, in Momentum Land, there is Twitter (TWTR:NYSE). We discussed the stock last week when it got to $42, which had been my target on the downside. Some of you told me that you own it and wanted a follow-up after today's amazing rise. It is hard to imagine that the stock will keep on soaring. But I would like to see it rally to that flat line ($47-ish) and then pull back toward $45-ish to give us a small head-and-shoulders bottom. If it can do that, the target would become that $54-$55 area.

For those who want something a bit more defensive, Clorox (CLX:NYSE) continues to base. A move over this resistance around $90.50 would measure to the mid-$90s, essentially the old high.

Today's Indicator

The McClellan Summation Index is still heading down. A net differential of +1200 advancers minus decliners is now needed to turn it around.


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 Top Stocks is not intended to provide personalized investment advice. Email Helene here.

Intuitive Surgical (ISRG:Nasdaq) has an island top in place now. Considering how much it has fallen, however, it ought to have some sort of rebound. I advise you to be a seller on a rebound to $440-ish. It is too soon to determine what sort of target we can get.

Baker Hughes (BHI:NYSE) still has a longer-term target near $80. But the shorter-term target is here in the $66-$68 area. So I would expect it to continue to do well, but would not be surprised if the chart went into a sideways/corrective pattern in the coming weeks. Perhaps we will see one more push up for the oversold rally and then a trading range before it makes a move toward $80-ish.

I would look for Mattel (MAT:Nasdaq) to rally toward $40 but not for a huge upside move. I suspect that we will see a long period of base building in the stock. Typically, when a chart breaks down as this has done, it takes many months before the base is big enough to launch more than just another oversold rally. Think of that Potash (POT:NYSE) chart we have looked at time and again.

Regards, Helene Meisler

Oversold by Wednesday
Action: CPB, DO, PFE, WYNN

If the market goes down tomorrow, I would still look for a lift as we head into the holiday weekend.

04/14/14 - 07:49 PM EDT
Heading Toward a Bottom

We are not there yet.

04/10/14 - 07:01 PM EDT

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