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A Sad Day for Small Caps

And for breadth, too. Let's look under the hood at the mess. Also, I've got charts for AMZN, SKX and TWTR.

The Market

Today was one of those days that was downright awful in small-cap land, but everywhere else, save energy, the market was more mixed.

Breadth was so bad. It was the worst in two weeks, but you see two weeks ago, when breadth was this poor, the S&P 500 closed the day down 20 handles, not up nearly 12. But maybe volume was in all the stocks that were up? Nope. Upside volume was 26% of the total volume. So volume was in the index-movers.

And let’s talk about the number of stocks making new lows, because I can’t think of anything positive to say there. The New York Stock Exchange had 80 new lows, which is the most we’ve seen since the late July low when there were nearly 100 new lows. I should note the S&P is up nearly 6% since then. What does that mean? It means fewer stocks are taking the indexes upward. The air is getting thin.

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But Nasdaq is where it is even uglier. The new lows there are again scraping up 300. Keep in mind we can’t even get 200 new highs, so to have almost 300 new lows is not good. This is more new lows than we saw in mid-July when Nasdaq was 4% lower. Heck, another down day and we might surpass the reading in February.

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Yet we have been able to identify areas that were oversold enough to bounce. That means the transports are up 6% in the last few weeks. It means the utes are up 8% since the July low. It means drugs stocks are up, some staples, etc.

So, on the one hand, I am quite uncomfortable with the market statistically, since those statistics tell us how much deterioration is taking place under the surface. On the hand, as long as the groups we identify are working, it seems like we shouldn’t be too concerned. Sentiment, as I have explained, leans bearish using the put/call ratios, but using anecdotes and surveys it’s a different story. Using the latter we have complacency.

And using the DSI, we find Nasdaq is now at 91 and the S&P is at 88. I’d say it means tread carefully, because these sentiment indicators need something to happen to take them down.

New Ideas

The utes (XLU:NYSE is the exchange-traded fund for the group), where my favorite stock is always Southern (SO) - Get Free Report, have had a terrific run. They have done absolutely nothing wrong, breaking out to a higher high on Monday. Yet, I feel I must point out that they are now mere points away from this trendline, which has been resistance for the last six years. I wouldn’t argue too loudly, if you want to take some profits.

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One area that I thought would rally and hasn’t is energy. The ETF XLE (XLE) - Get Free Report didn’t break under $48 today, so we’ll give it credit, but I had thought it could get over $50 and it hasn’t done that yet. A break of $48 would be a negative to me.

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Today’s Indicator

The 30-day moving average of the advance/decline line 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.

Twitter (TWTR) - Get Free Report should find some footing in the upper $50 or low $60 area. Not just from those intersecting lines (around $56-$57 currently), but it’s possible that a move that stays over $60 is a funky right shoulder of a head-and-shoulders bottom. So that’s the area I would have another look at Twitter.

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I don’t like stocks that have false breakouts, and that’s exactly what Amazon (AMZN:Nasdaq) has done. I would like it to get to the point where no one likes it, where there is a list of why you can’t buy it and it feels like so far we’re not there. Yet those black lines represent the range for the last year (with the exception of the false breakout) and the blue line represents the exact midpoint. I would say that somewhere in the $3,200 area AMZN should try and make a stand. I would love to see it bounce and come back down (on some news) and everyone declare it dead, because that would probably give it a better launchpad to rally.

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Sketchers (SKX) - Get Free Report is a chart that hasn’t done anything wrong yet. I can’t get excited about the stock, but if it came down to tag that line, then I’d take a stab on the long side because that line has been money for almost a year.

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