A Nice Bounce in the Averages but Could That Be a Top in SHOP?
Sure, the S&P 500 gained more than 1% Wednesday. But software stocks didn't participate. Shopify has more work to do if it's going to rally again.
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The Market
That was a bit more of a rally than I expected. And yet they still didn’t seem terribly interested in buying software stocks. Yet the contrarian in me cannot help but think they are due a rally.
Heck, even Adobe rallied today. Compare that with fan fave—really former fan fave—Shopify. I have been asked several times about (SHOP) in the last month, and each time I have not been positive on the chart with the comment that I thought it would come down and test that November low. Well, here we are.
I still think the chart is a top, but I stare at a chart like this, and I see a stock down twenty percent in a week that is at some support and staring at a gap (130), and I think it needs a bounce from this area (130-138).
But I do want to address a question I had today: when I say top, do I mean it’s bearish? The answer is yes. Tops are bearish. Bases are bullish. So, using the SHOP chart above, I would say if we do get a rally in it and that rally gets to 155-ish, I would be a seller.
As for the indicators, not much changed today. The Overbought/Oversold Oscillator milled around. The McClellan Summation Index, which was heading upward yesterday, maintained that upward bias. The indicator needs a net differential of -1000 advancers minus decliners to halt the rise. That is actually a pretty small cushion considering how strong breadth has been. The chart is below.
But it is the Investors’ Intelligence Bull/Bear Ratio I want to discuss today. It now has 59.6% bulls and 15.4% bears. My guess is this may be near the peak readings for bulls, but either way, the ratio is now 3.87. Anything over 4.0 and we are too giddy. Last year it only got to 3.75 before the spill. In late October, it crossed over 4.0. That means sentiment is still highly complacent.
I am not convinced this correction is over.
New Ideas
A few months ago, someone asked about NuScale Power (SMR) , and I was not a fan, but I promised to follow up if the chart ever shaped up again. Well, that top that it broke down from at 32 in November, measured to 12-13. The stock got to 14-ish and bounced. It now has a small head and shoulders bottom it’s trying to develop. I would use a tight stop (under 18-ish), but a move over 22.50-ish would be good.
I was asked if Netflix (NFLX) will ever bounce again. It is a lesson in what happens when a former fan fave goes out of fashion. There has been no bounce at all since December’s push down. It did, however, bounce (intraday) off the April low. It’s also clear the stock is oversold. So yes, it is due a bounce. But to make it more than a bounce, a gap up over 87 that leaves today’s action behind as an island would do it.
Finally, Microsoft clearly did not bounce today, but it’s hard for me to believe there is no bounce there.
Today’s Indicator
The McClellan Summation Index is discussed above.
Q&A/Reader’s Feedback
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I have been leaning toward thinking Meta (META) was going to hold and rally. But I was thinking it would hold 640, and it hasn’t. Now I think 640 is going to be some resistance on a rally, but for now, as long as this 600 area holds, it ought to improve.
GE Vernova (GEV) has been sideways so long that it’s hard to say if this will be a top or if it’s just a big sideways rest. I would use a stop under 620-ish.
If you have some patience, then Canadian National Rail (CNI) seems to be building a base on this weekly (3-year) chart. It’s going to take quite a bit of work to chew through that resistance, though. If it can ever get over that 104-105 area, it would signal it is completing the base.
Five Below (FIVE) has had quite a big run and is at the top of the resistance line, so for the time being, I would lean toward profit-taking in the 200-210 area. Otherwise, it might require much patience to wait for it to chew through the resistance.
