Hoping to Climb a Wall of Worry as Speculative Air Deflates
Bullish speculation has declined, which is good, but the healthiest rally would happen only after a bit more downside.
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The Market
NOTE: I am taking a vacation for the next week. The next edition of Top Stocks will be on Tuesday evening, January 21st. However, should something wild happen in the markets, I will check in. Let’s hope nothing wild happens!
For a day the S&P filled the election day gap (finally!) and then rallied it was pretty dull out there. Nasdaq clocked in with its lightest volume of the year.
Typically I like high volume on declines but now I think I would take lighter volume on Nasdaq as a positive. The reason is because lighter volume tells me the speculative air is coming out.
We can see air coming out in the quantum computing stocks, but we also see it in crypto. When Nasdaq checks in with its first string of three red net volume days (more down than up volume) for the first time since August, I know the air is leaking from that speculative action.
Today's action did not really change any of the indicators, and I honestly have no idea how the week will play out, but I do continue to believe that if we can get more downside in the coming days, especially if we rally for another day or so and then get a whack late in the week the set up for a better rally continues to be my base case.
Do check out the chart of the 30-day moving average of the advance/decline line below. That is getting very oversold. I have not been able to say the intermediate term is oversold in a long time but now I can.
I would also note that the number of stocks making new lows expanded (negative) but I had changed my view this weekend, believing that would happen. That means we won’t get that positive divergence. However all those new lows have turned the Hi-Lo Indicator back down so it’s possible this finally gets to a good oversold condition in the next week or so.
Finally, there is sentiment. I still don’t think there is any panic to speak of. I think there is a sense that the over-the-top bullishness from early December has eased off. Today’s put/call ratio of 1.0 is a good step. I’d love to see the ten-day moving average spurt right up there in the next week. It bothers me that as soon as we rallied today, the bearish talk subsided. A wall of worry is a plus; I prefer that.
In any event, do not fear more downside; it would just get us a better setup in my view.
New Ideas
I just want to remind you that XME continues to map out as I would like to see it. That resistance around 62 is still my target area.
I was asked to update the chart of XLE which I liked on the first trading day of the new year. My first resistance area has been 88-90 and maybe I can stretch it to 92 but this is the area. The DSI is now 86 so it would be great if it could back off so the DSI backs off as well.
Today’s Indicator
The 30-day moving average of the advance/decline line is discussed above.
Q&A/Reader’s Feedback
Unity Software U is coming back into support and should bounce from this 19-20-ish area. It would feel better if it came back down to tag that line later in the week, but this is the area it ought to hold.
When the cancer/alcohol news first came out and Diageo DEO plunged to 121 I thought, well here it is into support, not bad. But it bounced and collapsed from there. Unless this stock can jump back over 118 in a hurry, leaving today’s action as an island bottom, I’d say away except for a trading bounce at best.
JEPQ an etf for the Nasdaq Equity Premium Income doesn’t have a big top but it has small one that measures near 54 which also happens to close the gap from the election. It would feel better to me if it came down there.
When we last checked in on Apple AAPL, I noted that it had a measured target of 250-255. It found its way to 260 but has since come down in a straight line. It’s got some support here, and it’s oversold, but right now, I would think a bounce fails the first time up, around 240-245.
Meta META has a measured target of around 650. Mostly, it is uninteresting to me; it is the same price it was in early October and it hasn’t really gone up or down enough to create a pattern or say okay, it’s oversold/overbought.
Netflix NFLX has a measured target around 825 but the real support is back around 750-775. It looks to me as if it is the middle of nowhere. I’d be a seller at 875 if it can get there. Then I’d have to see if a pattern shows up or a target is met.
Palantir PLTR got way ahead of itself and now it would probably get oversold enough for a bounce near that line around 60. That’s the best I can say.
Uber UBER could use some more work down here because I think it will be difficult for it to chew through all that resistance that starts around 70 but at least we have a growth stock that is trying to form a base! I lean toward liking the stock on pullbacks. It’s just that support is so far away.
