The Health of the Market Is More Than Just Nvidia
It's all about market breadth. A healthy market contains lots of stocks that are rallying.
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The Market
Yes, I know all anyone seems to care about is Nvidia NVDA, but I care about breadth. I care about breadth because in early April, it was breadth that acted well even on days the indexes went down. So, when breadth falters, I care.
Typically, it takes quite a bit of faltering of breadth for it to matter. Improving breadth typically has an immediate reaction, but faltering is different (it’s human nature to buy, not sell, so it’s easier for stocks to make a low than a high.
Breadth has now been red for six of the last seven trading days. The good news is that at least we’ll soon be short-term oversold. The bad news is we’ve got to continue to watch these levels. So far, breadth made a higher high in mid-May (bullish), but you can see on the chart that breadth (blue) is much closer to Friday’s low than the S&P is to Friday’s low. That’s why we care. A lower low is not bullish.
I need to see more weakness to think the next few weeks will be more than just volatile, and that’s why I am fussing over this.
The other item on the agenda is the Utes. This is an area (79-ish) that the XLU needs to hold. Breaking it doesn’t make the chart awful because it just sinks into support further, but bouncing off the top of support is different than bouncing off the lower end.
Mostly, though, today was a big nothing day, just that most stocks churned and dripped a smidge lower. I still think we’re set up for more volatility in the coming weeks.
New Ideas
I was asked about the chart of Intrepid Potash IPI, which has had quite a run. That base it broke out of, measures to 40, so it is essentially just about there. I think if you wanted to take something off the table, it’s not a bad idea. Or just use a trailing stop under 35 for now.
I would remind you that Nutrien NTR is in a similar group and a stock I have been recommending for some time now. It has a short-term measured target around this 60 area, but it is not nearly as over-extended as IPI is. I’d like to see this one pull back to the 55-57 area to buy again.
In the spring, I also recommended CF Industries CF in this same group. It has had quite a run, but it too is nearing resistance.
Today’s Indicator
The Volume Indicator is at 54%, down from 57%. It remains overbought.
Q&A/Reader’s Feedback
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About a week or two ago, I acknowledged that my lower end support of 88 on TLT was not going to be valid, but that I still thought this 84 support would hold on this trip down. For the time being, I still feel this way. I don’t ‘love’ the bonds as I did in January when the DSI was single digits and bearishness was anywhere and everywhere. It’s just for the time being, I think they are more apt to NOT break down. I might change my mind a month or so from now because let’s face it: TLT does not act great, but with the Utes not breaking down, it’s hard to be bearish on bonds right here.
Disney DIS has had a terrific run, but it is now knocking up against resistance. I suspect there will be another rally at some point, but mostly, I’d lean toward profit taking for now. There are so many gaps it’s hard to determine where to be a buyer again. It needs a new pattern to set up.
It’s pretty disappointing that SoundHound SOUN was unable to fully fill that gap from February near 14. It's trying to form a bottom, so use a stop under last week’s low, which would also be where that uptrend line comes in. It would be helpful if it just quieted down for a while.
Meta META has had a nice run and is sitting over support. It needs to do a lot more work before I think it’s got a great setup. If it can go sideways between here and 600 for a few months, I’d get more interested in it. Right now, it just needs to hold over 600, or this will look like a failing rally.
This 175 area on Alphabet GOOGL is a tough spot, so if you want to take profits from this recent run I would not tackle you on your way to the order room. However, I am inclined to think a pullback to 165 that holds would make the chart a little bit better.
