From the desk of Tom Bruni @BruniCharting
The market has been a one way street since late December, but last week we put our our first short ideas since Q4 and Sunday night we wrote about some near-term risks that were emerging. Things are potentially changing.
At the Index level things are a hot mess, but under the surface we’re starting to see traffic moving in both directions…and that’s perfectly normal! Stocks go up and down. Let’s take a look at what we’re seeing.
Let’s start with the major indexes. A lot of them look like the Wilshire 5000 right now. Prices have rallied more than 20% in 2 short months, momentum finally got overbought but is diverging, and prices are sitting right near a flat 200-day moving average.
If there’s anything we know about flat 200-day moving averages, it’s that they cause headaches. There is a lack of trend here, so why try to force it?
Click on chart to enlarge view.
Some of the market’s names showing the most relative strength can be found in our IBD 50 Chartbook, but even the strongest stocks need to rest every once in a while.
A great example is Veeva Systems, which has rallied more than 50% off support and broke out to new all-time highs. Look at that massive bearish momentum divergence though, that likely needs to be worked through before the stock can head higher.
Ulta has rallied 42% off its lows and right back near all-time highs. With momentum diverging a breakout attempt without any consolidation has failed breakout written all over it. We’d much rather it digest the recent move and then attempt to move higher.
We also saw massive breadth thrusts in many of the indicators we track, like the % of S&P 500 stocks above their 200-day moving average. It’s moved from sub-15% to just over 60% in a short period of time. A pause would or a little pullback would be completely normal.
Just because the indexes are not trending doesn’t mean there aren’t any opportunities in individual names (Premium) see list of trades here. There are sectors/sub-sectors that stand out to the upside, some that stand out to the downside, and others that are a hot mess like the major indexes. Whatever side of the tape you’re looking to trade, have at it, because it looks like we’re back to a two-way market for a while. And that’s a welcomed development.
Thanks for reading and let us know if you have any questions!