What to Watch As We Get Closer to Overbought
Not much change in the indicators today, so here's what to watch over the next couple of weeks.
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The Market
As you can imagine, today’s action, which was concentrated in a few mega-cap stocks, didn’t move the needle on the indicators.
Sure, breadth was crummy, but it wasn’t enough to move anything. To put that in perspective, the McClellan Summation Index needs a net negative 1700 advancers minus decliners on the NYSE to halt the rise. Today’s net breadth was -900. So maybe—maybe—two more days like today, and it would stop going up.
However, this is what I watch as we get closer to the intermediate-term overbought condition. Do we finally get breadth to lag? Until yesterday, it had been leading. If the lagging of the last two days drags on into next week, we are very likely to see the Summation Index halt the rise right around the time we get intermediate-term overbought.
The new highs weren’t great again, but the new lows are mostly hovering where they have been (for Nasdaq in the 100-125 range). This means the Hi-Lo Indicator for Nasdaq hasn’t budged. It had that minor little tick up, but it has sat there ever since. A lower high next week, as we get intermediate-term overbought, would be a negative.
On the sentiment front, the put/call ratio today was .70. That is the lowest reading since mid-June (so almost a year), which coincidentally was the last time the semis were so hot. The semis peaked then but backed off and rallied again.
The Investors Intelligence survey showed the first switch: we now have more bulls than bears. It’s not extreme at all, but the bulls are 36% while the bears are 30%. I expect to see more bulls and fewer bears next week.
The DSI readings haven’t budged. Nasdaq is still 79, the S&P is 76, and the VIX is 19.
One final point to make. The Utes have been red for six straight days, and while no one is fussing over them (yet) they bounced right off that 990 area I noted last night. I’m looking for a bounce in this oversold group now. As for bonds, we probably need some hysteria there before we get a bounce.
The other side of the Ute’s coin is the SOX. It has been up seven straight days (much to my shock since I thought the SOX would find resistance at 46-4800). That makes them overbought.
As of now, it looks to me as if the market is setting up for a bout of volatility in June, but I would like to see where these indicators stand when we get intermediate-term overbought in another week or so.
New Ideas
I know everyone only wants tech, but I still think UPS should have another pop.
Today’s Indicator
The Volume Indicator is at 54%. It too ought to be overbought next week.
Q&A/Reader’s Feedback
I am terrible at high bases. I am also terrible at buying stocks as we head into an intermediate-term overbought condition. That having been said, getting D-Wave Quantum QBTS over 12 would be a nice breakout. It trades thinly, so I’d use a stop under 10 because a pullback under there would probably mean another swoon to the low end of the range.
United Rentals URI has done what many stocks have done this week: gap up and sit there. I suspect there will be another attempt at pushing into that 750-775 resistance area. It would be better if it did it from 700 rather than the gap fill down at 675.
Advanced Micro Devices AMD will run into some serious resistance around 130, but it has had resistance all the way up, and that hasn’t stopped it from gapping up. The problem is the semis are very overbought now. If it falls back to the 110-112 area, I’d have another look at it.
Gran Teirra Energy GTE is trying to build a base. The resistance at 5.50-6 is obvious. What is not obvious is where support is. If it can hold 5-ish, I’d be impressed.
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