Dramatic Turn in Small-Caps Raises New Questions
Let's look at an interesting comparison chart, a 'funky' pattern in chip stocks, Nike and an ETF I like. Plus, complacency reigns, as sentiment turns one‑sided.
You're reading 0 of 1 free page.
Register to read more or Unlock Pro — 50% Off Ends Soon
The Market
I should have realized when I said last Wednesday I expected Nvidia (NVDA) to bounce from support that it would mean most everything else would sit it out. But alas, it’s the same old story, "Nvidia vs. the 493."
But it’s not just that. Friday’s near 1% rally in the S&P 500 brought us flat breadth, but it also brought us back to the days of late September/early October when every unprofitable (tech) stock outperformed the profitable ones. Just look at the chart of the S&P Small-Cap 600 relative to the (IWM) (iShares Russell 2000 ETF). It might not look dramatic, but that turn down the last two days is quite a lot.
I suspect after all that concern over the semis last Wednesday —when they almost but not quite tagged that uptrend line I have been drawing in — folks will turn bullish quickly again on them. And while the pattern is very suspect and funky, I would not be surprised to see some highlight the possibility of this pattern playing out.
Why do I say it is funky? For many reasons, but mostly because the rally off the left shoulder (LS) did not make it up to the neckline (7400). That’s what makes the pattern suspect. Either way, I said I thought the semis should rally and I don’t want to give up on them quite yet. Let’s say for now as long as the line holds, they get the benefit of the doubt on the rally.
As the week progresses we’ll monitor the DSI for the VIX as that is at 21, not yet a teenager. I still think the VIX looks as if it is bottoming. A reading under 15 and I’ll think that’s enough.
As for sentiment, some have questioned my notion that it is complacent. Oh sure last Wednesday folks got concerned about tech for at least five minutes, maybe ten. But I do not have one sentiment indicator that is not elevated. In fact, in the weekend Twitter Poll I have been conducting for nearly six years now, folks lean very bullish.
The question is what you expect the next 100 points in the S&P to be. For the tenth straight week folks voted up. Let me note that the S&P is actually up about 10 points from ten weeks ago and yet folks keep voting UP. They voted down a whole lot more than this throughout the spring and summer. This weekend the UP vote was 73.3% which turns out to be the highest percentage of UP votes since the start of the poll.
The last time we came this close was in April. Ahh, that’s a good sign you say. The next 100-point move was actually down. We bottomed about a week later. But that’s not my point. My point is in April we were coming off panic levels, which we are clearly not doing now. Now we are at elevated complacent levels with the AAII folks leaning bullish, the Investors Intelligence folks leaning bullish, the NAAIM folks leaning bullish and the put/call ratios leaning bullish. We even have the folks at Consensus Inc. chiming with 74% bulls and the folks at Market Vane (bullish percentage) at 67%. I just don’t know how you can think there is any fear out there.
New Ideas
It is the time of the year when everyone expects you to pick the chart of the year. I’ve never been very good at that so I won’t attempt to do it now. But I do want to highlight once again the chart of (INDA) (iShares MSCI India ETF), an ETF to be long Indian stocks. I recommended it here a few months back at $52 and it had a nice run to $55 before backing off. As long as $52 holds I think this has a decent chance of getting itself up and over $55 in the coming months.
There is someone who asks about General Dynamics (GD) quite frequently so I want to note that it feels as if it is rounding under, having been correcting since October. I don’t want to see it go below $330.
Today’s Indicator
The number of stocks making new highs did not expand at all on Friday. You can thank the Nvidia (NVDA) rally for that.
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.
Coinbase (COIN) is at support and should rally. If I am wrong and it breaks this $240 area then the gap fill all the way back at $215 should contain the decline. However, the stocks is getting oversold, having spent nearly the entire month of December heading down.
Teradyne (TER) hasn’t done a thing wrong, with higher highs and higher lows, but it is not my kind of chart to buy/add to here. As long as that uptrend line holds, the stock is fine. There is a next target around $210-230.
Sally Beauty (SBH) has had a decent correction since the October high. It ought to rally. But here’s what would get me concerned: if it cannot get up and over those highs around $16.50-17 in the next couple of weeks, or if it breaks $14. The former would signal this is a topping pattern, not a consolidation pattern. The latter would signal it‘s a top that is breaking down.
I am quite sorry I ever thought Nike (NKE) could be bottoming to make a run in 2026. The reaction to the earnings and the outlook were downright terrible. Perhaps there were too many others thinking this down-and-out name could do better. However, on this weekly chart there is support in the mid-$50s. My guess is the next few days see some tax-loss selling, before it can lift as a speculative comeback play in 2026. Then I will have to re-assess how it acts.
I was asked for a target on Alcoa (AA) , a chart I have liked since last spring. The daily chart has a measured target in the mid-$50s and on the weekly chart shown below you can see $55 is resistance. I cannot in good conscience recommend this stock anymore because it has now doubled and is up on a spike. But should we see a correction in the first quarter I’d probably be happy to look at it again. Perhaps something back in the $40-45 area.
