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April’s First: Two Red Days in a Row

We saw the first consecutive red days this month, but did that change any of the indicators?

The Market

Once again the short-term overbought reading was hard at work, giving the S&P its first consecutive red days since the calendar turned to April. But did it change any of the indicators?

For now the answer is not enough. For example, the McClellan Summation Index is hanging on by a thread, meaning it is still rising. One even modest down day will halt the rise, but so far in the last seven trading days breadth has been negative five times and this indicator hasn’t rolled over yet. It has weakened in that the cushion it had was thick and now it’s almost threadbare, but it hasn’t shifted yet. The chart is shown below.

I noted on Monday that breadth wasn’t terrible for a down day of that magnitude. I would say the same again Tuesday. For example, Monday, the S&P 500 lost 51 points and net breadth was negative 1,620 on the New York Stock Exchange. Tuesday the S&P lost 87 points and net breadth was negative 1,775. Consider a week ago the S&P was down 63 points and net breadth was negative 2,000.

This is all very minor stuff, but this is the way the market has been, enough selling to take the indexes down, but not enough selling to turn the indicators south yet.

Did you notice that the small caps outperformed Tuesday? They have not been total losers since mid-March. By that I mean the ratio of Russell small cap fund IWM (IWM) - Get Free Report to the S&P fund SPY (SPY) - Get Free Report hasn’t broken down to a lower low.

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I would point out that the number of stocks making new lows is still relatively low but the 10-day moving average is likely to start rising this week. That’s the nature of the math and the overbought-ness of the market.

On the sentiment front, Monday saw the equity put/call ratio at 55%, which was the lowest reading since Feb. 21, so that told us people got a little too short-term bullish. Today the total (different than just the equity reading) put/call ratio chimed in at 110%, which is the highest since April 2. So sentiment is shuffling around minute to minute once again.

I will continue to monitor the indicators as we work off this overbought condition.

New Ideas

I think we need to focus on the chart of the Bank Index. For now the uptrend line is still intact, and Tuesday’s decline is still higher than last Thursday’s low. I’ll use a thick line, but if that line can hold while the market works off the overbought reading then I think we can have one more rally as we head into early May.

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For those who have asked about Pan American Silver (PAAS:Nasdaq) I think it can rally into that resistance area around $21-$22

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Today’s Indicator

The McClellan Summation Index is still rising.

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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 would have liked health care fund XLV (XLV) - Get Free Report to fill the gap overhead at $102-$103 before turning down, but it didn’t. This is somewhat similar to the Pfizer (PFE) - Get Free Report chart we looked at Monday: should pullback and attempt to rally again. The next rally will be key: Can it make a new high? The obvious spot for a pullback is now around $90, but I’m not sure it will get that far before another attempt at a rally.

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When we last looked at Apple (AAPL:Nasdaq), I thought it would stop in the $265-$270 area, so I thought that’s where it was a place to sell. You can see I was wrong, because the stock paused there and then had a last fling up near $290. Now the $260 level will be considered support. It should get a short-term bounce from there but I’m going to have to see how it looks (the bounce) before I decide if it’s worth more than a trade. Why? AAPL had a lower high in early March and now in mid-April so a failing bounce from here would be another lower high. The company is slated to report April 30.

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The chart of Annaly Capital Management (NLY) - Get Free Report looks pretty good to me. If it can get to $7.50 I would call that a big win. Be aware, the stock has a huge yield (16%) and in this environment I think you should assume anything with such a big yield is subject to seeing that dividend cut.

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