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A Rally Will Come Again...

... But so will another decline ... let's look at the indicators to see what's beneath the hood of Wednesday's action.

The Market

I clearly did not expect that much down Wednesday. But do I still expect an oversold rally? Yes. Let me explain.

First of all, the TRIN – the Trading Index – soared to 3.6. The other day, we discussed how infrequent it is that we get over 2.0, so you can imagine over 3.0 is even more infrequent. The last time we were this high was Feb. 5, 2018. That was during the Volatility Index implosion period.

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The S&P 500 had been down 113 points that day. It rallied 46 handles the very next day. Then it came down again. Do you see the theme? It’s that rally-and-down-again theme.

There was also 95% of the volume on the downside. Typically, we get a rally off of so much selling. We last saw a 90% downside volume day on Aug. 5, and we opened lower, but traded higher the next day and were actually higher for the ensuing two trading days.

The put/call ratio soared to 124%. The equity put/call ratio went to 84%. So, we know there was a lot of concern in the market Wednesday to go along with all the selling.

And we are oversold. My own Oscillator is oversold. The Nasdaq Momentum Indicator is oversold. Even the “what if” for the McClellan Summation Index is back to where it needs plus 2,900 advancers minus decliners to halt the decline. Once it needs plus 2,000, it is into oversold territory.

Yes, I know the yield curve inverted Wednesday. I also know the various statistics that say this that or the other thing about how the market performs thereafter. And how the economy will see a recession. But we had a little bit of hysteria Wednesday over it.

I still think we will need to come back down again. Why? The intermediate-term indicators are not oversold yet. The Hi-Lo Indicator for Nasdaq is now at 27%, so that’s getting close. The New York Stock Exchange is still over 40%, so that one is not.

Also, the number of stocks making new lows increased Wednesday. That tells us there will be no positive divergence. And it means the 10-day moving average of new lows is still rising.

The Volume Indicator is at 46% , so that one is on its way. My own intermediate-term Oscillator (the 30-day moving average of the advance/decline line, shown here Monday evenings) is not oversold, either. And I still don’t have a great time frame for when it might be. At this point I can pencil in sometime just after Labor Day as a possibility. I still think up then back down.

New Ideas

I know I keep coming back to the utilities, but considering the bonds were flying Wednesday, the outside day in the Utes and the fact that there is no higher high there should be concerning if you own this group.

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Today’s Indicator

The Volume Indicator is at 46%. The low 40s gets it 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.

I was not a fan of Dominion Energy (D) - Get Free Report recently, and now the question is whether I can warm up to it now. It’s still difficult for me to do so, but I do think it can rally to the underside of that line.

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Exxon Mobil (XOM) - Get Free Report has some support here, but I see no reason to buy it. It looks to me as if it gets saved here, it would still need to do a lot more work sideways before it can go anywhere special. If it rallies to $70 and then breaks it will probably come down and retest that December low.

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The collapse in Argentina a few days ago saw the stocks gap down. Telecom Argentina (TEO) - Get Free Report measures to around $8-$8.50 so I’d stay away for now.

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