Utilities Are the Canary in the Coal Mine
We had panic to kick off the week and there are some positives to the market action, but many negatives, too.
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The Market
We had a little more panic early in the morning when we opened with 97% of the volume on the downside. And the wild swings—up and down—tell us how shaky the market is.
Volume was once again extreme as the QQQs traded nearly 160 million shares. The VIX is definitely in jumpy land. And the put/call ratio was 1.23. Notch all that up on the positive side of the ledger.
On the negative side, new lows continue to expand, although the NYSE’s Hi-Lo Indicator is now at .10 so it is firmly in oversold territory now. Also on the negative side is the ISE call/put ratio, as folks were back to buying calls. I have truly never seen anything like it. On an intermediate-term basis, I think the fact that they can’t stop buying calls is a negative.
Anyway, bonds were also a negative. Sure, I have said I thought TLT would trade between 88 and 93, so a trip back down after getting just over 93 is expected, but that move is pretty violent.
You see, the Utes went from holding up to collapse. I did note Thursday morning when asked that I was not a buyer of Utes up there, but the collapse was more than I expected. And now XLU has broken that support. If it can’t recapture the line in a hurry, I take that as a negative for the overall market.
To go along with the Utes is HYG, an ETF to be long High Yield Bonds. That, too, has collapsed and broken down.
The bottom line is that I still think we get an oversold rally this week, but as that Sentiment Cycle chart shows after such a rally, I think we head back down again.
New Ideas
I will continue to refrain from recommending individual stocks and just note that if you want to trade the oversold rally, it’s the indexes I would use and note that technology is the most oversold.
Today’s Indicator
The 30-day moving average of the advance/decline line is only slightly oversold. It’s enough to get a bounce, but that’s it.
Q&A/Reader’s Feedback
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Apple’s AAPL top measured to a first target of 180. It also filled the gap from last May. If it rallies to the 210 area, I’d view it as a gift and would sell it there.
JP Morgan JPM broke a long-term uptrend line, and it gapped down. It ought to try and fill the gap in the 230-235 area. There is a big message if it can’t get to 230 because then it will leave all that trading between November and now as an island. It already has a head and shoulders top in place, which, longer-term (months), would measure down to 180-ish.
NVIDIA NVDA has an awful lot of resistance at 105 now. If it can rally back over it, then this will look like a false breakdown, but if it can’t get up over 110, then the longer-term measured target is around 60.
