Today's Theme: Low Quality
If you think breadth is "good" because of speculative names, is it really good?
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The Market
That’s Day 7!
Long-time readers know my view on these long streaks: the longer they go on, the more apt we are to reset, and at Day 7, we’re long in the tooth.
But I want to note a new chart today. Michael Santoli of CNBC showed it, and because I thought it was so interesting, I am sharing it with you. This is the S&P Quality ETF relative to the S&P. That is pretty rare territory. In the last decade, it’s been down here in 2018/2019, early 2021 (when we had SPAC-mania), and again near the 2022 low.
If you squint hard, you can see that it is trying to lift, having had a small bounce in recent days. What this chart shows me is the level of speculation we are seeing now. No one wants Meta (see below on that) or Amazon. I know no one cares about Netflix anymore, but that stock is trading where it was in May.
I could go on, but the point is that all the so-called broadening out (ahem, the cumulative advance/decline line still hasn’t made a new high, so I take issue with the notion we are broadening out) has been in speculative stocks. Or what we might term low-quality names.
Away from that, bonds were down today (we looked at TLT with that very few yesterday), which is probably why so many stocks traded so poorly today. The Russell and the SOX both closed on the low of the day.
New Ideas
Let’s start with AMD (AMD) . In mid-September, when the stock took a dive to 150, I said it was okay to buy. The measured target is 210, which it essentially hit today. Aside from the fact that the stock was down ten percent from its intraday high today, I would ask you to look at the chart of Oracle (ORCL) , which had a similar type of gap up and corrected from there.
Then there is Meta (META) , which no one ever asks about anymore. Probably because it has fallen more than ten percent in the last month. Maybe also because it made its high in early August. But today it finally filled that gap (from late July) and rallied to close in the green. The stock is also trading where it was in June, so if you liked it then, shouldn’t you like it now? It is a so-called quality name, isn’t it? And you know the risk/reward is good because we are sitting on support.
I was asked to follow up on MP Materials (MP) when I thought it had gone sideways long enough. I might be a bit early, but it’s shaping up again.
Today’s Indicator
The 30-day moving average of the advance/decline line is not oversold; it leans a bit overbought.
Q&A/Reader’s Feedback
Please note there are a lot of what I might call speculative stocks here. I think that says a lot about the current market.
I wouldn’t know what to do with a chart like Kratos Defense (KTOS) because it surely isn’t my kind of chart. It’s over-extended, and it has even achieved the target using the 90/100 rule (90% of the stocks that get to 90 will get to 100). I suppose it’s a hold until it does something wrong.
I suspect that spike high just shy of 100 on the chart of Tempus AI (TEM) will be a short-term problem, but otherwise, as long as the stock doesn’t break back under 80-ish, it gets the benefit of the doubt in this ridiculous market.
Uranium Royalty (UROY) has had quite a run already, but as long as it doesn’t break under 4, maybe this is a flag.
Plug Power (PLUG) measures to 5.25-ish, but again, this is not my kind of chart because it has nearly doubled in a few days.
United Health (UNH) got very close to filling the gap at 375 (that I had looked for), but I am not yet willing to give up on it. If you bought it near the lows and want to take something off, then by all means, it’s been a great trade, but unless it cracks back under 340-ish, it ought to get the benefit of the doubt.
