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Top Stocks With Helene Meisler

We're Starting to See Acceptance of the Rally

By Helene Meisler | 2018-04-18 18:39:52.0
Stocks in Focus: PEP, GPS, MU

The Market

It was a choppy day with plenty of cross currents. For example, bonds fell and banks fell as well. The commodity stocks were quite strong but the dollar wasn’t particularly weak.

And despite all of this, we finally -- finally -- saw the equity put/call ratio move under 60% to 56% today. So at least we’re finally seeing some acceptance of the rally. Just as we are short-term overbought! There is very little change in my view. I still think declines will lead to another rally but if sentiment starts accepting the rally that will be the change.

I want to update a chart I discussed quite a bit in late March. It is the net change in the spread between the 50- and 200-day moving average lines of the DJIA. You might recall that I noted when it slipped under -30 we consider the Dow oversold. As you can see it got more oversold than it did during the 2008 melt down. Point A on the chart is the November 20, 2008 low. The recent low got to just under -60. That’s grossly oversold.

It has since rallied (squint, you can see it). It is now just over -10. There is no rule of thumb for the overbought side of things. There is no rule of thumb for when this rally will finish. In 2008 we rallied 200 points off that oversold condition (27%) and then as you may recall we came down again, making the low in March which was a 30% decline from that oversold rally’s peak. Notice that the chart never got that oversold again. My point here is that this is no longer long-term oversold.

I also keep the S&P 500’s spread and when it is -3 it is oversold. It got to just under -5 and is now almost 0. So it too has worked off that long-term oversold condition.

One other highlight I have for today is oil. As you know I have been a fan of the oil stocks for quite some time now (we had to suffer for about a month before they finally moved). XLE is into the first target area of $72-$74. Halliburton’s target is around $54 so it’s getting close. But on the sentiment side of things, we’re finally stepping into the bullish zone. The Daily Sentiment Index (DSI) is now at 84. Over 90 would be considered frothy. At 84 it’s on the verge.

New Ideas

I want to share a chart with you. It’s Pepsi (PEP:NYSE). It doesn’t report until next week (Thursday) but when I look at the chart I think oh surely in this market it should hold. And then I think if it doesn’t hold, that is one gigantic top it will have broken down from. The line is not flat; slanted lines are more difficult to have confidence in. But If this stock doesn’t hold it could spell trouble for the rest of these XLP type names.

Sticking with stocks that have to hold, Gap (GPS:NYSE) has to hold 29 or it will complete a top with a first target filling that gap at $27.

Finally, I had said in late March that I thought a rally in Micron (MU:NYSE) near $54 was a good place to sell it. It failed just shy of there and then fell to $48. Today’s action was interesting to me and it finds itself at $54 now. If it can keep going then I think it can do $58 before it’s ready to roll back over.

Today’s Indicator

The Volume Indicator is at 51%. Neutral.

Q&A/Reader’s Feedback

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.

I would not know what to do with Occidental Petroleum (OXY:NYSE) except to take something off the table. It’s at the old highs and is up 20% in the last 2 weeks. Now if it should rest and then decide to break out that would be a different story but up here, you’d have to sell something.

I was asked if I still like Alllergan (AGN:NYSE) and the answer is yes but my patience is wearing thin as it refuses to breakout over $170. If it can ever break out it would be a nice chart breakout from the head and shoulders bottom.

Southwestern Energy (SWN:NYSE) is breaking out (finally) from a long consolidation. But it still measures to $5-ish; that hasn’t changed from the last time we looked at it!


Helene Meisler
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Chart of I:DJI
DOW 24,746.81 -1.26 -0.01%
S&P 500 2,701.25 -7.39 -0.27%
NASDAQ 7,276.7133 -18.5229 -0.25%