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A Sleepy Pullback

Let's look under the hood to see what's behind this lethargic move away from buying.

The Market

Well, we’re getting the pullback, but it was so lethargic.

There were a few pockets of selling, but mostly it felt more like buyers stepped away.

Under the hood, we have the same issue, though. Breadth was poor, but not horrible. It was enough to halt the rise in the McClellan Summation index. If there is any more weakness in breadth, we’ll see this indicator roll over. But, otherwise, it is just a halt for now.

The number of stocks making new lows is on the rise again; Nasdaq is back to triple-digit readings, but even the New York Stock Exchange saw new lows at a three-week high.

One thing that has shifted, though, is sentiment. No one was concerned last week and today, all of a sudden, everywhere I turned everyone was calling for a pullback (were they hiding last week?). That has showed itself in the highest put/call ratio (.89), since March 30 and the lowest ISE Ratio since Nov. 11.

The ISE is a call/put ratio, so here a low reading tends to be bullish. Maybe we see a rally on Tuesday.

Let me finish by noting that the breadth for Nasdaq has been red for seven of the last 10 trading days, which basically makes Nasdaq into oversold territory quickly.

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I wouldn’t be surprised if we rallied on Tuesday, but I still think we’re on track for a pullback.

New Ideas

I want to highlight this $220 area on the chart of the Russell 2000 fund (IWM:Nasdaq), because as bad as April has been for the Russell 2000, it hasn’t broken. If this pullback can’t break 220 that would be a positive.

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I also want to point out that the Energy Select Sector SPDR (XLE) - Get Free Report has not broken $48. It has been correcting for the last nearly six weeks, but the last four of them have seen a big sideways. I have been waiting patiently for $45-$46 and it doesn’t arrive. If $48 continues to hold then perhaps the correction is more of time than price.

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Today’s Indicator

The 30-day moving average got overbought Friday.

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Q&A/Reader’s Feedback

A few weeks ago, I thought Invesco Solar (TAN) - Get Free Report, an exchange-traded fund for the solar stocks, might get going, but I was wrong and it is down 10% from that time. It looks pretty droopy now, so if it can’t hold $80, I would get very concerned because then that gap fill down under $70 comes into play.

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Invesco WilderHill Clean Energy (PBW) - Get Free Report is a clean energy exchange-traded fund that is in danger of breaking down. You know you are wrong if it trades under around $80, so if you feel like bottom fishing then the risk/reward isn’t bad here. I prefer to bottom fish when the market is oversold, not overbought, but as you can see the selling is not fast and furious, but rather relentless. So if you want to buy it you need that selling to dry up.

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For the longest time, I have been of the mind that International Business Machines (IBM) - Get Free Report is in a trading range, and if it is due to report earnings when the stock is near the top of the range, then it is vulnerable to a move to the bottom of the range.

It is now trading over the prior tops, but that doesn’t mean I feel much differently about it. IBM reported earnings after the bell and the shocker is it didn’t gap lower. But it still looks fairly lethargic to me. However, if it can stay over the line as we move toward an oversold condition again. I would have a look. So long with a stop under the line or wait.

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