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Both Sides of My Favorite Ratio

Still expecting an overbought reading this week.

The Market

Well, that was an interesting day. We may as well begin with my favorite ratio. The Russell 2000 ETF (IWM) - Get Free Report/Nasdaq-100 ETF (QQQ:Nasdaq) surged like it did in June when the tech stocks, mostly the semis, tumbled. But up it went, right to the first resistance area. I can see it pulling back a bit, but I think there will be another push upward.

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Now let's discuss the IWM side of the trade. If we take the high of the range at $150 and subtract the low around $146 (I tend to discount spikes up and down), we get 4. If we add 4 into 150, we get 154, which is essentially where IWM got to today.

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Then there are the QQQ's -- the other side of the trade. Next support looks to be near $152. Now look at the volume today. High-volume declines in the QQQs tend to lead to rallies.

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So if IWM takes a breather -- we are going to be overbought Friday -- and the QQQ can rebound from that support area, then the ratio should back off some as well.

Let's now discuss the overbought reading. There are a few things at work here. First, we saw how Nasdaq reacted today to the overbought reading. But the number of stocks making new highs finally increased. They have not increased beyond the October readings, but they have moved over last week's readings, which is good.

Breadth today was flat. Nasdaq's net volume was quite negative, but considering Nasdaq was down nearly 90 points, it wasn't that awful (-640 million shares). The transports could care less about the resistance as they blew through like a hot knife through butter.

So breadth is OK, the small-caps are outperforming, the transports are and banks are in gear and the semis are collapsing. And sentiment is far too giddy. The put/call ratio for ETFs was under 100% for the fifth straight day. I have never seen five in a row.

But you see, two weeks ago we looked at the 10-day moving average of the put/call ratio and saw it rolling over (bullish). Last week, I noted that late this week we were likely to see that indicator bottom and curl back up. After Thursday, the 10-day moving average of the equity put/call ratio will begin to drop readings under 60%. That means any reading over 60% will turn it back up. And up means correction.

I think we see a pullback next week. No change in my view from yesterday, despite today's action.

New Ideas

Several of you have inquired about the iShares Nasdaq Biotechnology ETF (IBB:Nasdaq). Weeks ago, I noted I was a buyer between $300 and $305. Quite frankly, the bounce has been nothing to write home about. I also think Celgene (CELG:Nasdaq), Amgen (AMGN:Nasdaq) and Gilead (GILD:Nasdaq) are OK down here. Celgene refuses to lift, though.

As for IBB, I am exercising patience because if it can get through this $315-$320 zone it improves dramatically. I don't know what to use as a stop because I think a move back down to the lows of two weeks ago could be a retest, so I guess if $300 is broken I'd have to give up.

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Also as a follow up, Halliburton (HAL) - Get Free Report has not budged off this $41 area, but I'm still looking for a bounce. A solid, clear break of about $41 and I'd consider myself wrong.

Today's Indicator

The Volume Indicator is at 50%. Neutral.

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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.

I really want to like the chart of Athene Holding (ATH) - Get Free Report because the plunge in early November met the target of that top. But the resistance it has on the entire ride up bothers me. I suppose if it can get through $50 it would at least show signs of eating through the resistance better than I think it can. It's a tough call for me.

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Seagate Technology (STX:Nasdaq) might not be a terrible chart if it can hold $36-$37, because if it can get through $41-$42, it would be quite a breakout. I'd keep this on my radar. I wouldn't want to make a bet in advance because, as you can see, the stock tends to do a lot of gapping up and down, so I wouldn't want to get caught.

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On a long-term basis, that is a giant top in Tesla (TSLA:Nasdaq). But even on a day like today when the FANG and tech in general were clobbered, this couldn't break under that $300 area. However, if you have a longer-term view (three to six months), then a stop over $320 seems proper because a break of $290-$300 measures 100 points on the downside. Perhaps long-dated put options are the way to go.

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High on Tech

High on Tech

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