Sentiment Has Gone From 'Full Steam Ahead' to 'Moderating' and 'Choppy'
The pundits are finally starting to get worried.
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The Market
I want to be able to tell you something changed during today’s rally, but nothing changed. Oh sure, the Dow bounced off the lower channel line but that was the only change.
I suppose I could also note that the XLF filled that little gap down below and lo and behold folks are finally talking about the financials and not just software. Oh and sentiment did not seem to change either. In fact it’s anecdotal but I am starting to see several folks –shall we say—reconfigure—their target for the S&P.
They are not cutting price targets or earnings but they are starting to hem and haw and we’re getting more commentary like ‘moderating’ or ‘choppy’. Recall we came into the year with ‘full steam ahead’ sentiment. I will always welcome a change in sentiment where folks get more cautious.
We have seen the caution in the put/call ratios, very minor changes in the surveys but we’ll see if this coming week changes any of that.
Now for our daily dose of software chatter. After the bell Workday (WDAY) seems to have missed earnings, and the stock is down ten percent. The first thing to know is the stock has blown right through its measured downside target (150). The next thing to know—really to watch—is how not only WDAY handles the gap down (i.e. does it get bought or is there more panic?) but how the rest of the software names handle the news.
I know many of you are chomping at the bit to buy software stocks. I love to bottom fish too. But so far, all I see are short-term trades as we wait to see the charts sort themselves out. We must wait to see where the selling dries up, where the buying interest shows up, etc. That requires a lot of ups and downs, and it requires a lot of patience.
Those staples and drugs and materials and energy stocks that have been awesome of late didn’t build those bases in a day, or a month, but over years. We had some great trades in them over time, but they never had moves like this until bases were built. I don’t see that software will be much different.
New Ideas
I was asked if I thought the QQQs, on this short-term oversold condition, can rally to the top of the range. The range as been 590-640, so just about a ten percent range. I suppose much will depend on what NVDA reports tomorrow evening but let me give you two scenarios.
First, the WDAY news tomorrow takes this back down. I still think the number of new lows is likely to contract to fewer than 569 so I lean toward being positive on the QQQs into such a decline. For now.
If the WDAY news doesn’t take them back down, then I think that 620 area will be resistance. If NVDA reports earnings and gets folks excited, then the QQQs have a chance at 630. But mostly for the time being I am more focused on the downside because I think that would be a positive for tech in the short term. If we rally the question would be how soon folks get bullish.
Today’s Indicator
The McClellan Summation Index did stop going up and now requires a net differential of +400 to turn it back up (on the NYSE).
Nasdaq, has the potential to finally stop going down. If net volume (up minus down) on Nasdaq can get to a net of +1 billion shares I think this could turn upward.
Q&A/Reader’s Feedback
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Dutch Bros (BROS) is trying to bounce off some support and by now it must be oversold. If it cannot get back up over 50 quickly, I’d get quite concerned.
Palo Alto (PANW) is trying to find some footing after that earnings report but all I can say is that it’s oversold enough to bounce.
Visa (V) could not recapture 325 quickly and it fell yet again (this is a great example of what I mean when I say if it can recapture a level but if it can’t...) The only good news I see is that it has neared the April lows, and we’ve seen most stocks that get down to that area try and bounce at least for a few days. I would think it bounces especially because of the blue line. 315-320 is resistance.
TE Connectivity (TEL) is an interesting chart because it has gone sideways since November. For now it is still in a wide trading range (210-245) but if it can get over that January high I’d call it a breakout.
Johnson Controls (JCI) hasn’t done a thing wrong, but it is over-extended and therefore not the type of chart I would buy up here. Should it correct and shape up again I might like it again but up here I would just use a trailing stop under 138-ish.
(KWEB) , an ETF to be long the Chinese Internet stocks just keeps dribbling lower. I can’t even call it oversold although I probably would have done so on all those layers lower. I don’t think it will break 31 but I’m just not sure there is a reason to rush out and buy it.
