Are We in a Bear Market? And Other Reader Questions Answered.
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The Market
Let me address the few questions that have seemingly littered my inbox this week.
What if we don’t get panic? We should still rally. I simply think a market that panics leads to a better rally.
What would you buy for a rally? Technology. I highlighted the SOX the other day because that is the most oversold. But I could have gone with any of the tech stocks because they are where the majority of the selling has been. In an oversold rally, the oversold tend to be bought.
Will the rally last longer than a day? Yes, I believe so. I also believe it will be choppy (no panic equals more chop).
How long will it last? I don’t know right now. My initial thought is a week or so. The Nasdaq Hi-Lo Indicator is back to an oversold condition. We saw yesterday the 30-day moving average of the advance/decline line is a little bit oversold now too.
Are we in a bear market? By the definition most give it (down 20%), the answer would be no. But, the majority of stocks have been heading down since October (see the McClellan Summation Index below). That is not bull market action. So, call it what you want, but the Russell is down 18%. Do you really need to wait for another two percent to say it’s been bear market action?
We entered this year with my view that we would be in a trading not a trending market. I still think that is the case.
And the final question is, naturally, what I think about the tariffs. You don’t need my personal view on them, what you should know is that when we are given a deadline in the market—think government shutdown, debt ceiling, etc., we tend to prepare in advance for this deadline. I suspect much of the selling we’ve seen was prepping for it. If, for some reason, the market freaks out anyway, and we get some panic, well, heck, that would be good news, not bad.
While I think tech is the most oversold and therefore what is likely to rally, I also think there are a lot of big tops in those stocks, so this is about trading them and as they get to resistance, selling them.
One final word on Gold. The DSI pushed down to 80 so it is not (for now) in danger of seeing the DSI push over 90. It is, however, overbought, and there has been an awful lot of attention given to it. A correction is needed.
New Ideas
I was asked a few weeks ago about American Express AXP, and I thought it would rally to the 290 area where I would sell it. It only made it to 280-ish, but now it has come down to a higher low, so I still look for a move toward 280-290.
Today’s Indicator
The McClellan Summation Index is still heading down, although it won’t take much to turn it back up.
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.
Adobe ADBE might be oversold down here but the big picture is that it has had three gaps down since August. Why bottom fish in this market? There is a longer-term measured target of around 300. If the stock can rally to fill that gap around 435, I’d be a seller.
Celestica CLS is hanging by a thread, but it is oversold. It also looks like a big top that hasn’t broken yet. If the stock can’t rally in the next few days/week I think the next target is down near 60.
Kinder Morgan KMI is still hanging in there and hasn’t broken anything yet. As long as it holds this 28-ish area the next upside target would be filling that gap around 30. Notice that sometime later this month, the uptrend line will be around 26, so a break of 26 and that would be enough to complete a top in the chart. For now, it looks sideways.
We caught a nice rally in MicroStrategy MSTR in March but that 350 resistance proved to be too much for it. Even if it rallies again now I don’t have a strong view that it can get over 350. At best it probably trades between 225-350 for the time being. If it develops a few more lower highs then I’d look for 225 to break sometime in a few months.
Advanced Micro Devices AMD still can’t make a higher high. Sure it ought to rally again but unless/until it makes a higher high or starts basing, t here isn’t much to do aside from trade it. It should get oversold again within the next few days, in this 95-100 area, enough for another bounce.
