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Top Stocks With Helene Meisler

Think This Looks Like 2015? I Just Don't See It

By Helene Meisler | 10/23/16 - 12:06 PM EDT

Note: I will be on vacation this week. The next Letter will be go out on Monday morning, Oct. 31. Going forward it will be published early Monday morning rather than Sunday evening.

The Market

This market continues to be stuck in the mud. It was oversold last week and all the S&P 500 managed was about a half of a percent gain. However, lately, the questions I get asked most often have to do with the Russell 2000. And the questions are never if it is a buy.

Over the last week I was asked, in so many different ways, if the Russell 2000 is a short. Some queried if ProShares UltraShort Russell2000 (TWM:NYSE), an ETF to be double short the Russell, is a buy or whether Direxion Daily Small Cap Bear 3X (TZA:NYSE), an ETF to be triple short the Russell, is a buy. Many more inquired if 2016 looks just like 2015. So let’s take a look at the Russell from 2015 first.

I don’t know about you but I see a chart that topped out in June and by early October was down just over 15%.

Now let’s look at the chart of the Russell from this year, over the same timeframe.

Here I see a chart that bottomed in May/June and by mid-September was up about 15%. Just based on the way these two charts look, I see nothing that resembles 2015.

Now here is the chart of the cumulative advance/decline line in 2015. It peaked in the spring and bottomed in late September; in fact that low in late September was a positive divergence since it didn’t make a lower low.

For 2016, the advance/decline line (breadth) bottomed in May and, for now, has made its high in mid-September. So, here again, I see very little that resembles 2015.

I do believe folks are focusing on the chart of the S&P in the spring and summer of 2015 as a sign that this year looks similar. I suspect they think we are where I drew in the red circle on the 2015 chart, below.

So let's go back to the chart of the cumulative A/D from 2015 and see where it was in early August: quite far down from the peak in May. That is not the case today.

By the time August 2015 arrived the Russell was already down 8%; once again, that is not the case today.

This is not to say that everything is hunky dory in the current market. It isn’t. But I simply do not see a comparison to 2015 in the same manner as so many others do. And it is a rare event that the market repeats the same pattern year in and year out.

Sentiment was also not the same as the market entered August 2015. The best example I can offer is that the 10-day moving average of the equity put/call ratio was already over 70% in early August. Today it stands at 64%. That might not sound like a big difference but when the range is typically 80%-60% you have to admit that 64% is near the low while the 70% was high and rising.

My point of this exercise is not to say the market can’t break under 2130 on the S&P or 1200 on the Russell -- it can do so quite easily. But I do not see a basis for comparison between the two years based on the indicators.

I would love for the S&P break 2130 to see what is down there, to see if there would be real panic/fear. To see if we’d get positive divergences. To see if we can get a market that gets sold out. But so far that is not what we have.

While the market is no longer oversold, it is not overbought either. The equity put/call ratio has been under 60% for three days in a row, which is not bullish for the market overall. Yet breadth has not gotten worse. So we remain stuck with a market that can’t go up well and for now refuses to go down. Maybe it will break while I’m on vacation…

New Ideas

My request list (which I love so please keep sending me names) is extensive right now so I will not offer new ideas, but I am covering all the requested names, below, before heading out for my vacation.

Today’s Indicator

The Nasdaq Hi-Lo Indicator is not yet oversold.


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.

When we look at the chart of Deckers (DECK:Nasdaq) you might figure Ugg boots are out of favor right now. There is some support in the $54 area but if the stock bounces and can’t get back over $58 then there is a next target near the May low of $48.

VanEck Vectors Gold Miners (GDX:NYSE), an ETF to be long gold stocks tagged $25 this past week but has not yet filled that gap just shy of $26. I still think it should fill that gap. It is also quite impressive that the dollar was so strong this past week and GDX gave up very little. One note to make here is that if GDX can get above $26 and touch the underside of this trend line near $27 the chart becomes stronger than it is.

Speaking of the dollar, the chart of CurrencyShares Euro (FXE:NYSE), an ETF to be long the euro (vs the dollar) is of interest right now. It looks oversold to me. And there is decent support in the $105-$105.50 area. I think it can rally back to around $107.

Several weeks ago I noted the high base in the chart of PayPal Holdings (PYPL:Nasdaq). It managed to explode upward out of the base on earnings so I was asked for a follow-up. There is an unfulfilled target in the $46-$48 zone. I wouldn't chase it up here but if I owned PYPL I would look to sell it near the target zone.

I cannot recall the last time we looked at Microsoft (MSFT:Nasdaq) but there is an unfulfilled upside target near $64. Let me say I don’t like the way the stock traded on Friday, closing on the low of the day, so I would be cautious if it gaps down on Monday, leaving this as an island overhead. Barring a gap down I would say the stock ought to be buyable near $58, although remember my style is not to buy stocks that are up so much.

Since I am warming up to some retailers (yes, I am still waiting for Target (TGT:NYSE) to get going and my patience is wearing thin) I was asked about Michael Kors (KORS:Nasdaq). I think this chart has promise. The company doesn’t report earnings until Nov. 10 so my fear is that the stock will mill around under the line and then what do we do with earnings approaching as it becomes a gamble? I think KORS acts well and seems to be bottoming, possibly forming a small head-and-shoulders bottom with a neckline around $51. So you can see the $50-$51 resistance will be key to improving the stock. It’s clear a stop under $45 is needed. Once over that line -- if it can get there -- the next target would be near $56.

Look at the chart of Estee Lauder (EL:NYSE). It looks awful, like once it broke $87 it was going to tumble forever and a day. Yet what did it do on Friday? Reversed to close up. On a rally to $87 it can be sold with a tight stop at $88 because if it can recapture $87-$88 then this will look like a false breakdown.

If Align Technology (ALGN:Nasdaq) breaks $88, the next measured target is $84. It looks like a top to me.


Helene Meisler
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