We'll Talk Indicators, Too, but Let's Start With Several Stock Bellwethers
Several stocks could be the canary in the coal mine. Let's see how they perform and what they might be telling us.
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The Market
Not long before I left on vacation, I warmed up to the energy names. My vehicle of choice was the VanEck Oil Services ETF OIH. While it’s not been the greatest of trades (up about 12%), it’s not been terrible. But one of the reasons I liked it was because OIH had been outperforming the Energy Select Sector SPDR fund XLE, and when the high beta of the group does better than the low beta, I warm up.
I’d love it if the ratio were over 2.9 by now. I am willing to give it some time to get there, but also please look below and see that the OIH initial target has been that gap fill around 260.
Another reason I liked it was because it was so hated. With the rally in energy names today, I’ll be curious to see if that sentiment shifts, especially if it does so as we (hopefully) see OIH approach that 260 area.
Away from that, today was yet another day that there was more in the way of internal moves than there was in terms of the overall market. The drugs got a little lift (I am STILL waiting for them to make a good move), the energy names (discussed above), and today they sold the banks. They sold them pretty hard, too.
But take a look at what I am watching. Since there is so little selling overall, I am only watching this for now, but here’s what I’m eyeing. Let’s use Netflix NFLX as an example. When we had that big shift last week away from growth and into the 493, Netflix fell hard (arrow). Despite the rally later in the week, it just dripped sideways. Today, it dripped more.
The stock is down five percent (on a closing basis), which in the big picture is not a big deal; it’s a correction. And we can see there is support at that 1250-1260 area. Thus, the stock should bounce in the next few days.
Now turn your eyes to the chart of JP Morgan JPM, another recent fan fave. There is support at 270-275, but does it grind sideways and then come down to tag that support? Corrections always start out like this. Sometimes they drop and stabilize and then rally again. And sometimes they do what they did in February (blue circle).
And that is why I will be so interested to see if/how well NFLX can rally off support. These are the index movers. If they are rolling over—i.e., more than just a 5-10% correction—then it ought to start to show up in my indicators.
Right now, the indicators are just working off the overbought and the too bullish sentiment. If this is to turn into something more than that, I think we’ll start to see it in the charts first and then the indicators.
New Ideas
We looked at 3M MMM the other day as someone had inquired about it. I thought if the stock could go through this 156 area, it would be a nice breakout. The stock hasn’t done anything since we looked at it, but now it has piqued my interest, so I want to highlight it to you and follow up for the person who asked.
Today’s Indicator
The McClellan Summation Index is still heading upward. The cushion is now -1000 advancers minus decliners on the NYSE. That means if breadth turns sour as it did on Monday, this will stop going up.
Q&A/Reader’s Feedback
It’s been a long time coming, but OIH is trying to cross this second downtrend line. My initial target has been to fill that gap at 260 (from the April downdraft). Around there, it runs into some hefty resistance.
Will Bristol Myers BMY ever rally again? I keep thinking it will, but I’m going to use a stop under 44-ish now.
Last week, I said I thought Alibaba BABA should rally, and I think it has gone down every day since. Now I am asked about the Kraneshares CSI China Internet ETF KWEB, an ETF to be long Chinese Internet stocks. It has been trapped for two months in this range of 32-35, so unless it breaks in either direction, that’s the game. My inclination is that it should get over 35 eventually, but I will respect a break under 32-ish.
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.
