The Down-and-Outers Served Up a Series of Aces
Remember those stocks that had been lagging? Well, they served nothing but aces Tuesday and thoroughly trounced the market leaders.
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The Market
And just like that, the ratio of the RSP to the S&P did what it should have: bounced. And it bounced bigly.
In fact, it bounced so much that all those down-and-outers I have been loving on for months finally had their day in the sun. You might recall the same thing occurred a month ago, and I was concerned when it did so because when they rally the down-and-outers, we’re usually near the end of the rally. I still think that is true. However, notice that a month ago, the ratio did not have a similar bounce. Notice that a month ago, the ratio was not bouncing off this same level it has bounced off of twice before in the last year. So, I am willing to give it a few more days.
Long-time readers will know that I am a tennis fan. You may know that Wimbledon, which is played on grass, began Monday. There are three kinds of surfaces the pros play tennis on: hard courts (think US Open and Australian Open), clay (think French Open), and grass. The longest season is the hardcourt season, then clay and grass, which lasts about three weeks. Let’s just say I would love this change in the market (RSP over SPY) to be more like the hardcourt season than the grass season. I fear it will be more like grass.
But it wasn’t just the defensive names and drugs that bounced. It was the homies and the energy stocks. And Ford! And materials. The only thing I can think of that they all have in common is that they have languished and been down and out for much of the last few months.
We will continue to wait and see if sentiment gets more bullish this week, especially now that the 493 have had a big day.
Finally, let me note that the DSI for the US Dollar is at 15. Watch for a dollar rally shortly.
New Ideas
Back in early May, I was asked where I might buy Berkshire Hathaway BRK.B now that Mr. Buffett was leaving. I didn’t have a great answer, but now I can tell you the stock has come down enough and has decent support here. I think the risk/reward is decent for a trade. The Buffett premium is unlikely to come back, but the chart should rally.
I also want to note that Alibaba BABA is getting interesting again. As long as it holds this 110-ish area the risk/reward seems okay.
Today’s Indicator
The McClellan Summation Index is pointing up. It’s not as lively as it should be, but up is up. And it has a decent cushion of -1800 advancers minus decliners on the NYSE to halt the rise.
Q&A/Reader’s Feedback
The question is if I would consider 3M MMM a down and outer since it hasn’t gone anywhere all year. I would not. I would, however, say that over 156-ish is a breakout and completes a head and shoulders bottom.
I was asked to follow up on Block XYZ, a chart I liked a few months ago (in May). It has been slow going, but it’s up over 10%. My measured target is around 75, with an outside chance at filling that gap near 80. I do not want to see it break back under 64-ish.
The question is if I still like Amgen AMGN, and I do. My initial target when I recommended it near 265 was in that 300-310 area. Let’s see if it can get there.
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.
