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A Little Closer to the Bottom

We need a rally like this just to start the bottoming process – and it is still a process.

The Market

Everyone seems so disappointed in the late day sell off. I get it, you wanted another massive move up. I also get the news feels like it’s pulling you hither and yon. When I feel like I want to scream at every news headline, I do my best to mute the news and focus on the indicators.

Breadth was good. Sure, it was better earlier in the day, but it didn’t go negative the way Nasdaq did, did it? At positive 1,835 for the New York Stock Exchange breadth, we managed to get the McClellan Summation heading up for the first time since mid-January. That’s the good news. Oh, OK, there’s some more good news, breadth would now have to be negative 2,000 advancers minus decliners on the New York Stock Exchange to get it to head back down. Mind you, in this market that is very doable, but that is the first such cushion in months.

The bad news? At negative 2,000 it makes the market a little bit overbought short term.

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But we had our first consecutive green days in five weeks. That’s something, isn’t it? Again, the S&P could have gone negative the way Nasdaq did, yet it did not do so.

The Transports are up more than 20% since the lows. The Russell 2000 as of midday was up 19% off the low. These are not small and meaningless moves. Sure, it will take a whole lot more to get them up even more, but as a reminder, we need a rally like this just to start the bottoming process. And it is still a process. My view won’t change on that.

Elsewhere the Investor’s Intelligence bulls sunk to 30%, but the bears soared to 41%. This is the first time the bears have been higher than the bulls since the December 2018 lows. Can they go lower for the bulls? Yes, and they can go higher for the bears. But I say sentiment has finally shifted and it’s done so a lot.

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Let me end by noting that the credit exchange-traded-funds stayed positive for the day. But the iShares Barclays 20-Plus Year Treasury Bond (TLT:Nasdaq) is back at resistance, so we have to watch it. Thursday morning everyone expects a massive number of jobless claims (think millions), so if bonds don’t or can’t rally on that, it will be a tell for us.

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New Ideas

I want to discuss some patterns on charts tonight. Stocks with big lows that have rallied a lot have the room to retest those lows without making a lower low. Let’s take a tech stock like Western Digital (WDC) - Get Free Report. It has rallied from low to high nearly 20 points, which is also a huge percentage. You can see it made its way back to resistance, and I expect that $45-$55 area to be resistance for a while.

But look at the gap down at $35. The stock could easily come back and fill that or it could easily come all the way down to $27-$28. My point is that is now a far way down, so we ought to expect the next trip down does not see a lower low.

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We can take a stock like Wynn Resorts (WYNN:Nasdaq), which has now doubled off the low. There is some resistance at $80, but it is much heavier at $100. However, the stock would have to more than halve again to break the prior lows.

When charts put that much room between the lows after the initial rally, it gives them a lot more room for testing and retesting.

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A stock like Walgreens Boots Alliance (WBA) - Get Free Report didn’t have that much room from the low to resistance and now it’s a bit iffy if it will hold. I hope you see the difference.

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It’s why I go back to a stock like Texas Instruments (TXN) - Get Free Report, which we looked at a few days ago. You see the way it fell from the highs, but not like WDC and WYNN. And it hasn’t been able to rally or put a lot of distance between the low and the resistance. It remains vulnerable to making a lower low.

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Today’s Indicator

The Volume Indicator got to 38%, which is oversold.

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Q&A/Reader’s Feedback

Helene welcomes your questions about Top Stocks and her charting strategy and techniques. Please send an email directly to Helene with your questions. However, please remember that TheStreet.com Top Stocks is not intended to provide personalized investment advice. Email Helene here.

There is no way I could endorse buying Zscaler (ZS:Nasdaq) up here, because it has run so far in such a short time and is at resistance. However a pullback into that $55-$60 area would make the chart look better and be buyable.

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I struggle with the chart of Teva Pharmaceuticals (TEVA) - Get Free Report, not because of the chart but because it is Teva, which has a unique ability to disappoint. That having been said, if the stock can stay over $7.50, then I think it can fill that gap at $9. I’m not quite ready to commit to a gap fill at $10.

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Alphabet (GOOGL:Nasdaq) has resistance at $1,150 and if it can get through that the next area is near $1,250. I think if it pulled back to fill that gap near $1,050 and held it would be a decent risk/reward.

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