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Top Stocks With Helene Meisler

When Bad Things Happen to Good Charts

By Helene Meisler | 2017-07-24 03:14:47.0
Stocks in Focus: IBB, CMG, IRBT, WMT

The Market

You know that old expression, when bad things happen to good people? I couldn't help thinking about that this weekend. I have several good charts, charts that really should get better, and yet bad things keep happening to them. Oh, it's not that they collapse; it's more like they can't get going, they can't garner enough buying interest to get moving. They stall, they back off, they go nowhere but back into their trading ranges. The money seems to only roll into the same names, over and over again.

To reiterate, we are overbought. The Oscillator I keep is overbought. The Nasdaq Momentum Indicator is overbought. Nasdaq finally took a breather on Friday, so at least the green days stopped at 10, so the overbought condition is at work there. But as seems to be the case more often than not, these days the overbought condition reared its head in the Russell 2000. It stopped right at the line I drew in last week.

What I find fascinating, though, is that the Russell 2000 index itself has the same line, yet look at Friday's action that is not evident on the IWM ETF chart. Something feels askew, since that new high followed by a lower close is not what we see on the IWM chart.

This past week, the Insider Sell/Buy ratio shot up to levels not seen since early April. Here again, if we match it against the Russell, we see that the two previous moves up to 60 saw the Russell back off and correct. In late January, we saw a very quick 30-point correction in the Russell. In early April, it was 40 points. Late February's spike in the ratio did not get nearly as high, but that led to 70 downside points that lasted for over a month.

Notice we are not talking collapse, but rather overbought pullbacks. For now, that is what it continues to look like to me. Especially with the Daily Sentiment Index (DSI) for the S&P over 80%. Especially with the Fear and Greed Index at 74. Especially with the Investors Intelligence Bears at 16%. Especially with the last three days showing an equity put/call ratio under 60%.

To that, I can even add the Consensus Bulls are now at 75% -- a reading not seen since early March.

There really isn't that much selling going on underneath; it's more a lack of buying interest. Perhaps a pullback or shakeout will attract more buying interest.

This coming week we have several of the FANG winners reporting their earnings. One would think they might get the rest of the market excited but it seems, as usual, they keep the party to themselves. We also have the FOMC Meeting, which might get folks a bit nervous early in the week.

We've still got some decent charts, we just need some interest in them. That interest continues to be elusive, though.

New Ideas

Have received plenty of questions on the biotechs, and so I thought I would revisit the chart of iShares Nasdaq Biotechnology ETF (IBB: Nasdaq), my "go-to" for bios. Recall we had a near-term target when it broke out over $300 or $315-$320. The longer-term measured target is $340-$350. It backed off from the initial target, corrected and is now on the move. In the very near term there is a "next" measured target near 330.

For the longest time, I was bullish on the DAX, the German stock market, and had a measured target of 12750. You can see it went a bit beyond that, with a few closes over 12800, but that is the general area the DAX peaked. In the last few days I have seen many "wake up" and notice the DAX's decline. It's not a pretty chart, but with so many eyes noticing, my guess is if it gets down to 12100 and fills that gap, we'll see a bounce from there.

Today's Indicator

The number of stocks making new highs is not particularly exciting (184 on Friday), but the Hi-Lo Indicator is moving upward. As of now, I expect it to get overbought midweek this week.

Q&A/Reader's Feedback

I recall looking at Chipotle Mexican Grill (CMG:NYSE) when it broke that uptrend line a month or so ago and noting it had a lower target. Quite frankly, it ultimately measures near $300. Let me state right now I find it hard to believe it is going down another 10% in a straight line. I have a very short-term measured target near $335, so my guess is if it keeps falling Monday, we'll see a bounce from somewhere under $340. Right now, it looks to me like trying to catch a falling knife.

The first thing that strikes me when I look at the chart of iRobot (IRBT:Nasdaq) is that it has a strong tendency to gap on earnings; just look at the last three earnings gaps (red arrows). Earnings are due out after the close on Tuesday. If it gaps down to the black line, which would come awfully close to filling the previous quarter's earnings gap, then I'd believe it likely stops in that neighborhood ($70-$75).

It wouldn't surprise me one bit if Wal-Mart (WMT:NYSE) rallied up to fill that gap/tag the underside of the uptrend line, but I don't think it can get much farther than that right now.


Helene Meisler
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