If You've Been Waiting for Stocks to Be Overbought, Your Wait Is Over
Now, we're looking to see whether they can rally into the weekend.
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The Market
NOTE: I am taking Thursday off. The next edition will be Sunday evening.
I figured the market would wait until next week to do this, but here we are. We are in the neighborhood of the intermediate term overbought condition, so let’s just say it’s an area.
Can we rally the next day or two? We can. You know why? Because the QQQs traded 70 million shares on the day, which is high for them. We tend to get a rally when volume gets that high for one day.
But let’s not focus on that. I would like it if they did that, but let’s be sure that we know the market is intermediate-term overbought. Let’s make sure we know that the breadth was so crummy today that it was the worst it has been since April 4th. And that means the McClellan Summation Index stopped going up. Yesterday the cushion was small, and today it has evaporated. We now need a breadth day of +1500 advancers minus decliners on the NYSE to stop it from rolling over.
The penny stock folks were back again today with nearly three billion shares in three stocks. But, in terms of the indicators, the Investors Intelligence bulls jumped to 42.3% while the bears fell to 26.9%. That means this is the first time we’ve seen more bulls than bears since the first week of March. That’s the shift I had expected to arrive this week, and it has.
With today’s decline, I would not expect the NAAIM or AAII sentiment surveys (released on Thursday) to show such a marked change.
Today’s decline didn’t change the ten-day moving average of the put/call ratio, which we’ve looked at this week. And it did not change the fact that joining the intermediate term Oscillator on the overbought side of the ledger, we now have the Volume Indicator at 57%, which makes it overbought as well. The chart is shown below.
If you want good news, with the SOX down five straight days, the likelihood of a rally goes up. Also, there was very little selling in the tech stocks today. If you want good news, the Hi-Lo Indicator did not roll over (it has been my assumption that they would wait until after the overbought condition to do so).
If you want good news, the IWM is just about closing the gap from the May 12th China rally so maybe it gets a rally.
Generally speaking, I had earmarked the end of this week for us to get overbought, and the fact that today’s whack came earlier than expected doesn’t change much. I still expect a volatile month of June.
New Ideas
Here’s something I will be watching. Can United Airlines UAL hold 70 on this trip down? It’s already down more than ten bucks from the high, so do buyers step up at 70?
American Express AXP has given up the entire China rally. Does it hold 280? Holding the top of support is obviously more bullish than falling into it.
Finally, TLT has support here from that gap fill and those two lines. Does it hold? The DSI on bonds is still at 37.
Today’s Indicator
The Volume Indicator is discussed above.
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.
The Trade Desk TTD got to resistance and couldn’t plow through. I’m not sure it will make it all the way to 60 to close that gap on this correction. My guess is it finds some support near 70 and rallies again, but if it can’t get through 80, then the next trip down, I would expect it to fill that gap.
Marvell MRVL has been a laggard in the semi-rally. It probably rallies again and then comes down later on to fill that gap near 50. I’d be a seller on a rally to 65-70 and a buyer on a gap fill near 50.
If Raytheon Technologies RTX can hold 135, I would be very impressed. But my guess is it backtracks to that 130 area where I’d like to take another look at it.
