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Top Stocks With Helene Meisler

Health Care Bill Reveals Fragile Market

By Helene Meisler | 2017-03-23 18:14:41.0
Stocks in Focus: GS, DIN, AN, RTN

The Market

The drama over this health care bill tells us how ridiculous the market is right now. Why? If the entire market hangs in the balance of passing one bill -- and I grant you it is an important one -- then what does that really say about the market? How fragile is it if this bill carries that much weight?

Shouldn't earnings be important? Should economics be important? I am sure someone will have a plausible explanation as to why everyone feels as though this is the be- all and end-all in the market. Here's what I know:

I know there has been deterioration in the market since early February. Breadth has slacked off. The number of stocks making new highs has tailed off. The number of stocks making new lows has increased. The transports have been crushed. The small- caps have been pushed way down. The financials have been sold hard. High-yield has been sold. Oils have been sold. Retail has been sold. What exactly has been so great about this market?

Oh wait, I know. Technology has held up. The indexes have held up. Some but not all health care has been good; many topped out weeks ago. When that many groups have been that weak for that long, there is underlying weakness in the market. I don't care how great the S&P holds up.

So let me give you some good news. As I noted the other day, the Fear and Greed Index is down to the low 30s. Once it gets under 20, we know some fear has developed in the market. The put/call ratio today was 113%, so we know folks are starting to get concerned (the 10-day moving average of the put/call ratio is still rising, so we're still not "there" yet; that chart is shown below).

As I noted last evening, the Volume Indicator is in the upper 40s and once it heads into the low 40s it is oversold. But that takes more selling, not churning, to get it there. The McClellan Summation Index is still heading down as well (bearish), but it will now take a net differential of +700 advancers minus decliners to halt the slide. Two weeks ago it needed +4,400.

All of this means that if we can get the market indexes to sell off in the next week or so, we might actually reach a decent oversold condition and we might actually see some fear in the market. And we might actually see some of the stocks that are down and out start to hold.

I am willing to wait for that. I am not willing to believe what we saw this week was enough of a cleanout. Whether or not this has to do with passing the health care bill is beyond me. As we know, the narrative is written after the price movement; I've rarely seen it the other way around.

New Ideas

I stopped liking the financials in December. So sure, I missed the February rally, but in retrospect it appears all I did was miss that last-gasp rally. If we look at Goldman Sachs (GS:NYSE), I admit I thought it could/should rally from $230 in much better fashion than it has (I still think it might/could). But I want to discuss what happens if it breaks $230 with some oomph. First of all, it measure to $210 where there is also a gap. But more importantly, don't you think if GS cracks under $230 with some oomph, all that complacency in the financials (and the market) will evaporate? I sure do.

Today's Indicator

The 10-day moving average of the put/call ratio is still rising.


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.

DineEquity (DIN:NYSE) has had a very poor time of it lately. Gosh, you'd think it was a retailer or maybe a small-cap oil stock! But no, this is the parent of IHOP! My guess is that hefty dividend (over 7%) is the reason it is so low; someone believes it will get cut. If I were to speculate, perhaps we saw a short-term low the other day and the stock will rally toward the mid-$50s and come back down on a dividend cut. In other words, I think you might have to wait for the dividend cut before you see some decent low.

If you are looking for a chart that is oversold and has a chance of bouncing, then I suppose AutoNation (AN:NYSE) in this $41 area would be it. But that is the best I can say about this chart; at best it should have an oversold bounce.

Raytheon (RTN:NYSE) is an interesting chart because a break here completes a mini- head-and-shoulders top -- very mini since it would only measure to that uptrend line. The stock has hit its upside target, so I think the best it can do from here is go sideways. Down near $148, I might get more interested again. Up there, I'm in favor of profit taking.


Helene Meisler
Top Stocks

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I don't understand why this is considered a make-or-break moment.

03/22/17 - 06:32 PM EDT
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But there are still some positives.

03/21/17 - 06:31 PM EDT

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Chart of I:DJI
DOW 20,596.72 -59.86 -0.29%
S&P 500 2,343.98 -1.98 -0.08%
NASDAQ 5,828.7380 +11.0450 0.19%