The Stock To Watch: iRobot

On our last stock to watch, I covered Nvidia($NVDA), where I wrote on any market pull back this stock is a buy. Six month later, it is up 40%, the only downside to our coverage was we were hoping for more of a pullback, which did not occur (the article was posted at Nvidia's lows).

Fortunately another stock has fit my proprietary trading algorithm, as you may of guessed from the title it is $IRBT (iRobot Corporation). It is rare in the last few years that a stock would fit my proprietary trading algorithm so perfectly as $IRBT. At the moment the stock is currently pulling back.

Once the stock stops pulling back, it will receive a significant bounce. For me to safely purchase this stock I would like to see it around the $60-65 price range. As seen with my call on $NVDA, I don't always nail the buy price of where to buy, but one thing is for sure, once this stock stops bleeding it will bounce hard.

The Stock Market Is Not Well

In my last post in April I discussed a potential top in the Stock Market. As of early June 2017, this Market has not topped out. I am here to remind my fellow readers, do not let complacency get the best of you. If anything in the last 2 months Market conditions have gotten worse.

The stock chart above is the McClellan Oscillator, which is used to determine the overall strength and liquidity for the Stock Market within a medium term time frame (months). As the Market continues to go tread higher, this indicator has not confirmed these "highs". Meaning, there is a high chance the market will be susceptible to a significant correction. 

What would one expect from this indicator is for readings above 150 to hit at least for a few days. The issue is, this indicator has not shown strength for a very long as shown in the chart above. The last time this indicator confirmed true strength of the Market was back in December 2016 (by which the Market proceeded to go on a bullish tear in 2017).  

In short, until this chart shows bullish confirmation (hitting readings above +150 comfortably), I would be very hesitant of investing in the long/medium term when it comes to this Market.

Is The Market Going To Top Out in 2017?

The chart above is the Ratio Adjusted Summation Index ($NYSI).  The $NYSI, which is a great tool to measure the strength of a Bull Market, is calculated by adding the daily values of the McClellan Oscillator. Readings above 500 convey the message that we are in a Bull Market and will continue to make higher highs.

However, over the last year a bearish divergence has formed. As the Market continues to go higher, the $NYSI continues to trend lower (shown on the chart above). Thus, this indicator is signaling a potential significant top looming for the Stock Market.

Unfortunately, what this indicator does not tell us is the timing of such a top. A significant pullback could range from days to months from now. That type of information is better left to other indicators such as RSI, the VIX or perhaps Bollinger Bands.

Regardless of timing, this indicator is telling us the risk of investing/trading in this market has greatly increased via negative divergence. Trade and invest with caution!