A Nice Respite From the Selling

 | Apr 01, 2014 | 6:05 AM EDT
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It finally happened: The Nasdaq wasn't sold off in the afternoon, as it has been over the past several sessions. But PowerShares QQQ (QQQ) did close on the low of the day in Monday's session, which goes to show that momentum names were still on the sale block. But did that constitute quarter-end jockeying or was it real selling?

Again, what I find so curious about these names is that they're suffering relentless selling without any attendant bounces triggered by oversold readings. At some point these stocks should undergo a decent oversold pop. So if they get smacked down on Tuesday -- even just for an hour or two -- I think that will set them up for an oversold rally later in the week.

Why do I say this? Well, the put-call ratio on ETFs was above 200% Monday. For such a big up day, there were an awful lot of folks betting against it. I can only assume much of the betting-against was tilted toward things associated with momentum stocks -- because almost all of them started the day up nicely, drifted down as the day wore on and then went red late in the session.

Remember, the biotech sector rolled over before the momentum names did -- and those bios finally saw the selling abate Monday. The question for all these stocks is whether real buying will show up at this point, or if Monday's session merely offered a respite in the selling. A capitulation would have offered some certainty here but, without that, all you can do is wait for the selling to dry up.

Meanwhile, I have a mea culpa. From late December through most of 2014, I loved on the Dow Jones Utility Average, but I decided it was time to exit when it got to 525. The utes then backed off to support at 510, and underwent another rally that I believed would fail -- but I was wrong: The index has gone on to make a higher high. In any case, this chart still measures to around 550.

Separately, back in February, when no one liked iShares MSCI Emerging Markets Index (EEM), I opined that this group was entitled to rally and that the negativity on it was too deep. I have continued to like this group -- and iShares MSCI Mexico Capped ETF (EWW) is my newest favorite, as I highlighted last week. However, by now the EEM has captured too much attention.

There is a measured target around $43 on the EEM, but the fund is quite stretched at the moment -- and, with this new love fest taking place, I can see a correction starting by the end of the week. I suspect we'll see a shakeout toward that $40 area, which would have the price retesting that downtrend line.

Finally, take note that crude oil has stopped in the resistance area highlighted on the chart below. Sure, maybe this has something to do with this past weekend's Barron's article, which calls for $75-per-barrel oil. But, either way, I suspect any climb toward that $101-to-$102 area on the April contract will stop this current rally.




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