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At Least There's a Ratio We Can Count On

IWM vs. QQQ is still working.

The Market

There is so little life in this market, but at least the ratio of the Russell 2000 ETF (IWM) - Get Free Report to the Nasdaq 100 ETF (QQQ:Nasdaq) continues to work. And as long as that's working, declines in the market should be contained.

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I would point out that the Russell 2000 is at 1500, which is resistance. The IWM is just a bit shy of that resistance. I can imagine, after so many days of outperformance and the first touch at resistance, we could see a pullback in the ratio and in the small-caps. But I don't think it's done yet.

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My views of overbought and oversold are based on the advance/decline line. The shorter term is based on the 10-day moving average of the net of the advancers minus decliners and the intermediate term is based on the 30-day moving average. The chart of the 30-day moving average is shown below.

However, what I do is look back at the numbers we are dropping to see if we are overbought or oversold. If we are to drop a long string of red numbers, then we're oversold. Conversely, if we are to drop a long string of green or black numbers, we are overbought. Take a look at the string of numbers we are to drop on the 10- and 30-day moving averages beginning tomorrow. There is a lot of red there. They are not large red numbers (the larger the numbers, the more oversold we are) but there are enough of them.

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It's a holiday week so as you can tell it's quite thin out there. It seems all moves will be exacerbated.

New Ideas

We looked at Ulta Beauty (ULTA:Nasdaq) about a month ago when it gapped down and I was of the mind that there would be a rally and a retest, enough to give us a W, which we had two weeks ago. The stock has since crossed over the downtrend line. I think it should bounce again, especially if it tags that downtrend line as a retest.

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Today's Indicator

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

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Q&A

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.

Johnson Controls (JCI) - Get Free Report has gapped down twice in the last few months, which this year has typically meant "stay away." The rebound from that spike low last week, though, is intriguing. I would like to see a base built but if the stock can get over $36.50-$37, it would at least have recaptured the resistance of the previous low. That would be the first positive in a while for this stock. If it can't do that, I'd stay away.

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The iShares U.S. Realty ETF (IYR) - Get Free Report, for being long REITs, keeps making higher highs and higher lows. I'd call it a stock in an uptrend. The only action I see is if it comes down to the line, I'd look for a bounce.

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We looked at PG&E (PCG) - Get Free Report about a month ago when the stock collapsed. At the time, I said retests of spike lows are common and I would expect to see one in the next month or two. This looks like we're getting the retest. It's a difficult call to make as to where the retest takes place, though: Does it get all the way to $50 or does it stop before then? Or does it break and snap back? If you want to buy it, then maybe you just leg into it slowly. My guess is there will be tax loss selling in it. Not to mention the utilities are out of favor now.

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High on Tech

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