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Top Stocks With Helene Meisler

Sentiment Turns Up Quickly

By Helene Meisler | 2018-04-26 18:52:04.0
Stocks in Focus: GS

The Market

In the category of ‘there is nothing like price to change sentiment’ could feel the shift today?

Two days ago, after the Caterpillar (CAT:NYSE) earnings debacle everyone was convinced that we were at peak earnings and that was that for the market. As I have noted several times, we have seen this quite often during earnings season. If the early earnings reactions are poor sentiment shifts so fast that if you do get some good earnings later in the season we can rally because it is no longer priced in.

So now we watch for the pendulum to swing the other way. Can you feel the giddiness of the FANG and technology stocks? The put/call ratio sunk to 82%. This is the lowest reading since March 9th. The Index put/call ratio moved to 85%, the first reading under 100% since March 20th.

Here is the chart of the S&P with those two dates noted in blue and red. I imagine if we rally tomorrow and hold the gains we may see absolute giddiness by midday tomorrow.

Away from that breadth was good but not great. I’m sure you saw the lagging Russell 2000 and the Transports. But the 30-day moving average of the advance/decline line is oversold. I was asked if I was outright bearish on the market. The reason is because I expect, based on how I’ve drawn in my anticipation of the VIX action, to see the market head down again in May.

In early January -- I believe it was the first Letter of the year -- I said I expected this year to bring us volatility. I have been consistent in that view and I do not anticipate that changing much for the foreseeable future. That doesn’t mean bullish or bearish, it means I think we see a lot of swings up and down.

So if you go back to the VIX chart, notice I drew in a move down before a move back up. Doesn’t down suggest a rally? I do think if we get through the current intermediate term oversold reading and see sentiment too bullish then a decline in mid May is very likely. I know it feels like a roller coaster, but that’s what higher volatility is.

For now my notes still say another dip early next week and another rally. Then if we get the change in sentiment I think we will get we ought to come back down again. At some point it will matter because of the 200-day moving average line. As I wrote a month ago, as long as it is rising, breaks of it should be temporary but once—if—it rolls over breaks of it mean a lot more. For now it is still rising.

New Ideas

Goldman Sachs (GS:NYSE) has been downright awful since they reported earnings. So much so that no one even talks about it anymore, like it doesn’t exist. I think it has a rally attempt to $245-$250 where it is a sale. You can decide if you want to play the rally or wait to sell it. That head and shoulders top eventually measures around $215. My guess is it takes a long time to make its way down there.

Today’s Indicator

The 10-day moving average of the put/call ratio is milling around and quite frankly I can’t tell which way it wants to go. A further decline would be positive for the market. A rise would be negative. The moving average is dropping a string of readings in the 90s so if we continue to see readings such as we saw today it will fall, and it will do so quickly, likely bottoming out in early May. Yes, there’s that May date again.

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

I’ve drawn in a lot of lines on the chart of YY (YY:Nasdaq) so let’s take a step back. The black line represents a funky neckline of a head and shoulders top. It measures into the $70-$75 area. The red line represents a decent area of support which should lead to a bounce in the near term. The blue line which is descending and two weeks from now will come in around $105 which is the next real resistance area. What’s it all mean? I’d look for a rally short term. If you are lucky enough to get a rally to the $105 area, that’s where it’s a sale.

Applied Materials (AMAT:Nasdasq) looks to me as if it is developing a broadening top. A breakdown would be a long way away though so my guess is a rally to the blue line is a good place to sell it.

Altria Group (MO:NYSE) broke down from the top and it has a measured target in the $50-$52 area. So at least it is getting close to being ‘enough’ on the downside. But there is no base to speak of, just the possibility of an oversold bounce, perhaps when the month is done because who wants to show this on their books before then?

Regards,

Helene Meisler
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