The Market
What a difference a day makes. It’s like last week never happened. One by one folks who
were complacent last week seemed to have forgotten that stance and are now cautious. In
fact the International Securities and Exchange’s call/put ratio fell to .74 today, which
is
the lowest since Oct. 10 (remember, this is different from the CBOE’s put/call ratio).
So, I’d say today changed some minds.
Overall, while the market was down, it didn’t have that feeling of a lot of selling. For
example, we spoke about all those lower highs, but very few stocks made lower lows (than
two weeks ago). Breadth was poor, but that is to be expected. And let me report that the
McClellan Summation Index is still rising. It now needs a net differential of negative 800
advancers minus decliners on the New York Stock Exchange to halt the rise.
I saw so many say today’s decline was about China. I’m not sure you can say that, because
oil, which was down, reversed and closed up. And the Chinese stocks were mostly green. I
think today was about the lack of buying we’d seen in the last week or so (fewer new
highs) just brought its weight down on the market.
Can we rally Tuesday? I think we can. But I just don’t think the market is set up for a
lot of upside until we have a proper correction. And I continue to think the Dow remains
the most vulnerable since it is the index that has run the farthest.
Right now, if I had to pick a level by drawing a line on a chart, it would be this uptrend
line in the Russell 2000 fund (IWM) – Get Free Report. That $180 area was the low two weeks ago and now
it’s where the uptrend line comes in. I think that holds on the first trip down. I don’t
think it holds on the next trip down—call it the week of Dec. 5.
Let’s take a look at the 30-day moving average of the put/call ratio. Point A was the
April high in the market. Point B was the August high. Now we are trying to get the moving
average to turn upward and if it is successful in turning upward then this general area in
the market ought to be a high for now.
Let’s see if the Summation Index can roll over because if that doesn’t happen, declines
will be quite temporary. Let’s not be complacent.
New Ideas
I was asked if I still think Amazon (AMZN) – Get Free Report can rally (I liked it down near $90 last
week). The answer is, Yes. But at the same time, now I would give up on it should it break
last week’s lows.
I was asked if there is a specific level that I think ProShares Short Dow30 DOG, an
exchange-traded fund to be short the Dow, can rally, too. My guess is $33 is going to be
tough on the first trip up but my thought is that it could map out as I have drawn in
blue. Just remember this is a “short” ETF and they tend to map out differently than
regular stocks. Take some profits when you have them.
Today’s Indicator
The 30-day moving average of the advance/decline line is overbought.
Q&A/Reader’s Feedback
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advice. Email Helene here.
I suppose if the Energy Select Sector SPDR Fund (XLE) – Get Free Report can spend a few weeks going
sideways and not break under $87.50 I would have to be impressed, but my thought on the
chart is that it ought to break at some point later this month. And then somewhere in the
$82-$83 area, when folks decide maybe energy isn’t the place to be anymore, I might like
it again. But for now I continue to think it is vulnerable.
The iShares Biotechnology ETF (IBB) – Get Free Report continues to build a base. It is almost one year
in the making now. But it cannot manage to breakout. Typically that means it should make
its way back down toward that line one more time.
When we last looked at Uber (UBER) – Get Free Report I thought it was a sale in the $30 area and I
haven’t changed my mind. A trip back to that uptrend line would be an interesting spot to
have another look at it, but so far it hasn’t been able to get back to the
August/September highs. I’ll call it a trading range between $24 and $32 for now.
Read More: Bear in a China Shop?