With the Semis Rallying, Can This Stock I’m Watching Hit $600?
The Market
Note: I am going to visit my mother this weekend, so there will be no Top Stocks. The next edition will be on Monday evening.
So that’s what a rally in the SOX looks like!
The question of the day is how far I think it can rally. I don’t know. But I can tell you that I continue to have my eyes on Western Digital ($WDC). For the most part, it held the low a few days ago (reminder, this has been my go-to stock for the Semis since June), so now on the upside, I have my eyes on 560 first because that was the high last week. Then there is 600 because that’s where the stock rallied to the first week of July.
My rule of thumb is always can the stock get over the prior high, and then if it can, can it get over the high before that. Right now, WDC looks like a possible W pattern to me. Should it break under 430 (the twin lows) with any gusto, I would consider myself wrong.
I should note that I think there will be fits and starts. The window is open for several more days. For many of the semi stocks, this was a bubble that burst. I would expect we start to see differentiation going forward.
As for the market as a whole, you might have noticed that as soon as the semis rallied, the others got sidelined. Breadth was +365 on the NYSE. To put that in perspective, two days ago (Tuesday), the S&P was +15 on the day, and net breadth was +725. I continue to think if the semis/tech rallies, it is difficult for the others to do so. It’s Either/Or.
With that in mind, I realize everyone is obsessed with the tech and semi groups, but the Transports have collapsed and were down 1.7% today (for their 6th down day in a row). They are oversold but that is not pretty. This is a group I would consider an ‘other’.
Aside from that, there wasn’t much else to highlight from today’s trading. I still think tech/semis can rally, and the others should pull back in August. And maybe, just maybe, we will get everyone to move together later in the month to get the VIX jumpy.
New Ideas
Let’s start with energy. A week ago, I said I thought Valero ($VLO) should pull back toward this line around 300 and bounce. It has done so. Now I do not want to see it back under yesterday’s low.
OIH, an ETF to be long oil service stocks, has been a serious laggard in this latest oil rally. A quick glance at the chart says this may be a head-and-shoulders top. But I have my eye on 360 because if 360 can hold, maybe this laggard picks up a few friends. I am not ready to count OIH out yet.
Lately, I have been asked about China and the Chinese internet stocks quite a bit, so I thought I would point out that Baidu ($BIDU) seems to be holding on this trip down. It’s clear under 100, and I am wrong. Maybe BIDU even crosses that downtrend line.
Today’s Indicator
The 5-day moving average of the ISE equity call/put ratio is at the bottom of the page. In the last few years, this is where it bounced from because folks had loaded up on too many puts.
Q&A/Reader’s Feedback
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I don’t love that XLV, an ETF to be long drug stocks, gapped down and left an island overhead. I suppose you can give it a few more days to see if the gap gets filled. If it can’t fill by say, Tuesday, I’d be a profit taker. On a more intermediate-term basis, the support at 157 is good, so you can give it some room to see if it holds there. Also, I consider drugs ‘others,’ so I don’t expect them to be great in August.
The action this week in XLP, an ETF to be long staples, is not great, as we saw a gap into resistance that gave it up quickly. Yet I am inclined to think that, for the time being, a move down toward 83 (XLP is an ‘other’) should hold.
I have liked Microsoft ($MSFT) since it was around 360, and even though it is at resistance, I am still inclined to like it. But there is a lot of resistance here, and it will need to digest this move, so I don’t want to buy it up here. For now, it’s just a hold. I want to see how it backs and fills.
I don’t love that false breakout in Cal-Maine ($CALM). However, I’d love to look at this again should it come down toward that short uptrend line because that does look like a base in the making. I’m inclined to think 80-82, the stock gets interesting again. I have tried to draw in blue how I think it might map out over the next few weeks.
That’s a nice breakout in Chipotle Mexican Grill ($CMG). There is resistance at 41 that will be tough to chew through, but if it can stay over 36-37, it ought to improve the chart.
We looked at Vistra Energy ($VST) the other day (earnings are out next week), and I drew in this same sideways pattern. I still think it is basing, but I think it is early. For now, the trading range of 140-175 seems the best it is going to do. I do not want to see it gap under the May low.
