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Top Stocks With Helene Meisler

A Rally With Weak Breadth

By Helene Meisler | 2018-02-15 18:52:09.0
Stocks in Focus: BMY, K

The Market

There were some changes today but nothing materially different than the last few days. I will begin with breadth. While it was good it really wasn’t as good as it should be. In the past 5 days we have had four days with the S&P 500 seeing gains of between 32 and 38 points. The breadth on those days should have been better but forgetting that it should have been better, let’s just compare what we’ve seen.

I will exclude last Friday’s 38 point gain because it started midday so breadth had a lot of catching up to do. Now we’re down to 3 days. Monday’s net breadth was +1340. Okay, not terrific. Wednesday’s net breadth was +1100; it should have at least been as good at Monday’s but it wasn’t. Today net breadth was +1100. Again, why isn’t it getting better the higher we go?

For the longest time I have said that we would see serious weakness in breadth (the cumulative advance/decline line) well before a real top in the market. We saw that minor divergence in late January. Here is the current chart. I will monitor it for signs of weakness. Right now it’s just lagging. But as you can see, the S&P 500 has recaptured 50% of the losses and this has not.

I am still targeting an overbought reading midweek next week but keep in mind the U.S. markets are closed Monday which means Tuesday is our first trading day of the week. We are maximum overbought by Wednesday.

Now in good news (because I feel I have been Debbie Downer in the first half) the put/call ratio remains high. The 10-day moving average of the equity put/call ratio hasn’t even rolled over yet (heading down is bullish). The chart is below.

Quite frankly I don’t know what to make of it because it is highly unusual that folks would remain so steadfastly bearish or at least not embracing the rally at this point. Elsewhere the American Association of Individual Investors saw the bulls rise 11 points this week to 48.5% so we have seen a swift change there.

I suspect this rapid pace of rallying stalls out in the next few trading days as we head into the short term overbought reading.

New Ideas

There were several questions on my old friend Bristol Myers (BMY:NYSE) today since it finally showed us what it’s made of! The measured target is $70-$72 so I would probably consider taking some profits around there.

There was a very curious thing in the market today. Staples rallied (so did the Utes but I fear if I mention them they will curse me and head right back down!). Kellogg (K:NYSE) is attempting to break out of a head and shoulders bottom. My preference is to see it move as I have drawn in blue and wait to buy that pullback to test the line (around $69).

Today’s Indicator

The equity put/call ratio is discussed above.

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.

The chart of Goldcorp (GG:NYSE) runs into resistance around $14.25. I would have to see a different pattern shape up before I thought it can eat through resistance well so for now $14.25-$14.50.

Dollar Tree (DLTR:Nasdaq) got clocked recently (along with everything else) supposedly due to the possibility of a change in the SNAP program from the USDA. I say it looks like a correction that if it gets through $110 should make a try back at the old high. I would get very concerned if it could not get through $110.

Compass Minerals (CMP:NYSE) is not a pretty chart. It has support near $62. It also has a measured target around 60 so I would say it should start to find some footing in the 60-62 area.

NVIDIA (NVDA:Nasdaq) is back at the highs and I never trust stocks back at the highs to breakout and keep going unless they do one of two things. First, pull back and then re- rally (giving it some running room) or breakout and come back and retest the breakout. Therefore at $250 I see nothing to do except wait to see if it sets up a pattern like that either way. Can it be a double top? Sure but I don’t think I have ever looked for a double top pattern in my life while it was developing so I won’t start now.

I am in search of decent looking energy stocks and National Oilwell Varco (NOV:NYSE) is not bad. It bounced off support. Now if it can follow the pattern I drew in that would make it a decent looking chart. Remember the pattern is the key, not the price/levels.


Helene Meisler
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Chart of I:DJI
DOW 25,219.38 +19.01 0.08%
S&P 500 2,732.22 +1.02 0.04%
NASDAQ 7,239.4655 -16.9645 -0.23%