Are Stocks Setting Up for a Bounce?
Volume could hold the clue to what's next for the stock market.
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The Market
Note: I am taking the week off. The next edition of Top Stocks will be one week from today. Wishing everyone a Happy Thanksgiving!
I want to take you back to the spring decline by looking at the chart of the (QQQ) . Do you see how the QQQs made their high in mid-February and how volume started to get a bit frisky the end of the first week of March when it reached 75 million shares (blue box)?
I looked back to see what I thought at the time, and I see I thought it was enough for an oversold bounce. And we did have an oversold bounce, from 470 to 490. Not bad, although it took two weeks to rally four percent (these days we seem to be able to do that in a few days!).
But as we headed back down again, I was calling out for volume to rise over 100 million shares. It finally did so three weeks later, and a spill of another 15%. That’s a cleanout. That’s capitulation.
So when I look at the current situation with not one but two consecutive days of volume over 100 million shares, my inclination is to think this is similar to reaching 75 million shares in the second week of March.
Notice that volume heading into the February high was averaging about 20 million shares a day. That means 75 million was nearly four times the daily volume. If you look at volume in the QQQs over the last two months, it has averaged around 50 million shares. So the recent two-day high-volume period is noteworthy, but it is only two times the average daily volume.
Last week, we looked at the Nasdaq Momentum Indicator, and I kept plugging in lower closes to find the day that the indicator went up, even if price went down. That day hasn’t changed; it is still this coming week.
So do I think the Mag 7 names/QQQs can bounce more than they have because Friday sure wasn’t impressive in the favorite names? I sure do. Would I love to see a little panic? Yes. Will we get it? Probably not.
What I saw on Friday seemed to be a lot of short covering. After all, when I see a stock like Cava (CAVA) rally 12% on no news, something it hasn’t been able to do since it came off the April low, I know someone decided it was time to cover the short.
Granted, all rallies start with short covering, but this is just an example of how I view Friday’s rally. Keep in mind, (NVDA) was red, so it allowed the others to rally. That remains the case.
I will end by noting that the DSI for Bitcoin stayed at 13 on Friday, but that plunge and the low DSI still have me leaning toward being a buyer than a seller.
New Ideas
I was asked to update my view on 3M (MMM) , which I had recommended last summer (and took until October to make a move). Even after it broke out, it still didn’t go very far. But as long as it stays over that lower line, I have an unfulfilled measured target in the low 180s.
Today’s Indicator
The new lows on Nasdaq contracted on Friday. There were still an awful lot of new lows (422), but it was fewer than the 467 we had the prior day. The Hi-lo Indicator is at .27 (not shown). Under .20 it gets oversold.
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.
Regeneron (REGN) is another healthcare stock that has been on a tear lately. Short term, it has some trouble at the old high near 780, but pullbacks into the 720 area ought to be buyable for now.
I don’t love the chart of Kohl's (KSS) , but unless/until it breaks under 14, this may be a consolidation. So, I would just use a stop under there.
Republic Services (RSG) has had a terrific run in the last week or so and now finds itself at a downtrend line that has been in place since –wait for it—July! I’d love to see it cross the downtrend line. That’s not the all-clear since there is so much resistance overhead to chew through, but it would signal the downtrend that has been in place for six months has changed.
Lululemon (LULU) reports earnings in two weeks, so the usual disclaimer that earnings are a wildcard applies. This stock has been in a downtrend since February, but the relentless decline since June’s gap down has been pronounced. Cross over the line, and at least it signals the potential for the decline to stop. However, with so many gaps, this stock will need a lot of basing to overcome them. Should the stock gap up over 200 and hold it, that would leave this action since September as an island (bullish). Break under 160 and the downtrend is intact.
Robinhood (HOOD) bounced from support—okay, it barely bounced—but it also filled that gap from September. I would say a bounce into the 120 area of resistance is doable. If it bounces and can’t even get to 120 before heading back down, then I’d look for 100 to break and the stock to head toward 90 (a measured target).
(XLG) is an ETF to be long the top 50 stocks in the S&P, which means it’s the same chart as the S&P. There is support here, and so it ought to bounce. If it cannot get back over 60 (i.e., over that broken uptrend line), it would be bearish.
(BUG) , an ETF to be long the Cybersecurity stocks, doesn’t trade much (less than a million shares traded Friday), but I suspect much of the recent decline is related to Palo Alto Networks (PANW), which I haven’t much liked the last few times we’ve looked at it. You can see the resistance on the chart of BUG at 32.50, so let’s look at PANW also for clues.
(PANW) Palo Alto Networks is trying to bounce off an uptrend line. And that top that broke at 200 measured to 180, which it tagged on Friday. Thus, I would say it is due for a bounce. There is a chance it fills that gap around 178 first. I am only talking about a bounce at this point, though. Notice this is yet another ‘tech’ stock that is flat on the year.
