The Market
The bond market is closed on Monday as it is a holiday. I would love to tell you that
means stocks can move on their own, paying little or no attention to the interest rates,
but I am not sure. If stocks can rally on Monday then the real test for them is when the
bond market comes back to work on Tuesday.
What I see in the market over the last week is that folks are selling what has been
holding up. First, it was the Utes that everyone loved at the highs and they got a rug
pull. I said the other day I might finally warm back up to Utes in the next week or two.
One reason is that when this was at the top of the channel and folks loved them, I was not
a fan. But now that the lower channel is coming into play again – this is a 10-year
channel — all I hear is the equivalent of “Danger Will Robinson” when anyone mentions the
Utes. Basically, they have gone from love to hate in a month, but I guess that’s what
happens when something thought to be so safe falls 20% in a month.
Then there are the staples. For weeks we heard folks say that they thought the staples
were okay to buy. Now they are getting clobbered. In the staples area, I have been
negative on Kellogg (K) – Get Kellogg Company Report, which hasn’t broken down yet but sure looks like a head and
shoulders top. It’s only down 6% in the last few weeks.
But they have also come for Apple (AAPL: Nasdaq) and Microsoft (MSFT: Nasdaq), which we
have discussed plenty on these pages. I think the only group that hasn’t been taken to the
woodshed is drugs. Considering Pfizer (PFE: NYSE) could not hold that $44-$46 area, why
should we think Bristol Myers (BMY) – Get Bristol-Myers Squibb Company Report will not succumb to at least test $66?
But at the same time look at a chart like FedEx (FDX) – Get FedEx Corporation Report. First, they had crummy
earnings a few weeks ago which gave us the huge gap down but on Friday they said holiday
deliveries would miss. The stock opened down and closed almost unchanged on the day. I am
still not a fan of the chart — there is no base to even speak of — but while everyone
thinks the market is a monolith, I think we’re starting to see what has held up get sold
and what has been sold attempt to hold.
That’s why despite the decline on Friday we’ve seen fewer stocks make new lows yet again.
The chart is shown below. We’re also not yet overbought, on a short or an intermediate
term basis. And if we ever needed a sign that the U.S. Dollar has had enough, Barron’s saw
fit to put it on the cover.
That’s the bull case — or at least the case for a rally (we’re still in a bear market).
A few weeks ago, I drew in this line on the long-term chart of the S&P 500. We’ve been
toying with it for weeks now. When it comes to long-term charts like this, I feel like the
break needs to be decisive enough for me to call it a real break. My guess is it breaks
eventually, but it feels too late for it to break now, after all the Daily Sentiment Index
for the S&P is at 9 which usually means we should rally in the near term.
One last note on why I think this line matters so much. It’s because it delineates what
transpired in the market in the Fed induced covid run up. Coming back down under that
leaves that entire area as a big top.
New Ideas
Northrop Grumman (NOC) – Get Northrop Grumman Corporation Report is a chart I get asked about on a regular basis, and every
time I like it, we get a fabulous pop and then it falls right back into the big sideways
that has been in place since March. I suppose it is a basic uptrend but it also can’t seem
to break out and go. A move up and over this $500 area should net another pop.
Today’s Indicator
The new lows are discussed above. Here is the Hi-Lo Indicator which has curled up but is
still single digits.
Q&A/Reader’s Feedback
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here.
Once again I was asked to look at Netflix (NFLX:Nasdaq) which is one of those charts I
have noticed everyone likes lately, but that’s because it’s one of the few stocks that
hasn’t collapsed. Yet, I am always suspicious of charts like this because when there are
so few, too many seem to be in them and they tend not to work. Be very careful if this
breaks $220-ish because then I think we’re looking at a tag of that lower line at $200-
ish.
I was asked if the weekly chart of Tesla (TSLA:Nasdaq) which we looked at the other day (I
thought it should have a bounce off the $230-ish area) is a head and shoulders top. It is,
but take a close look and notice that since early 2021, the stock has not made a lower low
on this weekly chart. So, until it breaks under $200 (likely it will do so before the bear
market is done) the pattern has been one of higher lows.
Should it break $200, the stock then measures to zero which is ridiculous so rather than
focus on a target focus on the big top.
For the time being First Solar (FSLR:Nasdaq) has done nothing wrong. Until it breaks to a
lower low we can say that. But do you think in this market environment they won’t
eventually come for this stock? There isn’t even a real breakdown level to use, but I’d be
a seller up here.
Does the Wynn Resorts (WYNN:Nasdaq) chart look like Las Vegas Sands (LVS) – Get Las Vegas Sands Corp. Report? Yes and
no. No because in the case of Wynn, there is resistance all the way up so the breakout is
more like a higher high than it is a breakout. That having been said, if it can pullback
near $70 and hold on, the stock could start eating through the resistance, but I expect
that will be a long slog.
Read More: We Are Not Short-Term or Intermediate-Term Overbought