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Breaking Down Breadth

Let's check out how breadth looked each month of the year so far and what that can tell us. Also, let's look at the dollar, sentiment and more.

The Market

If you spend time reading market comments or listening to the various guests and hosts on television, you can get a pretty good anecdotal idea of sentiment. It often takes a bit longer for it to show up in the actual data sets, but you can feel the shift over time.

Take, for example, the absolute loathing of technology stocks back in May. One after another, folks extolled the virtues of the economically sensitive stocks, which was fine, but at the same time they had a laundry list of why you shouldn’t own tech/growth. Since the May lows Nasdaq is up about 12%. Now they all love tech.

Now let’s talk about the dollar. It was just a month ago that everyone hated the buck. This we didn’t necessarily see as much anecdotally as we did in the Daily Sentiment Index (DSI), which dropped to almost single digits at those lows. Now that the buck has rallied so strongly everyone is talking about the buck going higher.

I do not have a strong view on the dollar here, because to me it is in the middle of the range, but anecdotally the shift has taken place. But my sense is if it rallies to that line overhead, there will be far too many bulls for my taste.

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We have discussed the bonds, too. Everyone screamed rates were going higher in February and March, which turned out to be the high in rates (low in bonds fund (TLT:Nasdaq)). Now that rates have moved up, no one is calling for higher rates. Nope, now they say we’re in a trading range. I am of the mind that the spike high in TLT at $146 is going to turn out to be an area of resistance. So, sure, maybe TLT rallies to that big downtrend line around $147-$148, but I don’t think it goes much beyond that. I have likened it to the way the February and March lows played out: a lower low that was quickly erased.

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That brings me to this week’s action in the market. The Russell 2000 has declined 1%. Breadth has been very mediocre at best, leaning weak. On Monday folks shrugged, but now it’s two days and we see concern creeping in.

Tomorrow brings us the end of the quarter, which to me is a coin toss. Thursday brings us the first day of the new quarter and month. And Friday ushers in the employment number. I am not much for seasonality, but this will be the seventh new month of the year and with the exception of January, breadth has been solidly positive on every single one of them:

January -1,300 February +1,800 March +2,000 April +2,000 May +1,300 June +1,500

The S&P was clearly red on the first day of January and in June it lost two points. Perhaps I am making too much out of this, but it seems to me we could see a solid up day before the week is out, just enough to remove the gloom that set in today. And enough to get us to an overbought reading with giddiness.

New Ideas

We looked at Baidu (BIDU:Nasdaq) with a positive eye just over a week ago and it has had a nice run. It’s got some resistance up here, but if it can get through that line it still has resistance, but then I’d buy pullbacks to the line.

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On the flip side, Cummins (CMI) - Get Free Report should come down and retest that spike low from two weeks ago ($230-$235).

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Today’s Indicator

The McClellan Summation Index is still heading down. It will require a net differential of positive 1,400 advancers minus decliners on the NYSE to halt the decline.

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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 like to see Schlumberger (SLB) - Get Free Report come down to that support area in the upper $20s or $30 range. If I am correct that the market should pull back in July, then it ought to make its way down there in the next several weeks.

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I think Apple (AAPL:Nasdaq) is OK here, but I cannot chase it. I suspect that $138-$140 area of resistance is trouble the first trip up here and therefore I would prefer a dip toward that blue line for buying. I’ll call it a hold for now but not a stock I’d want to chase.

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I can calculate a measured target for Moderna (MRNA:Nasdaq) between $240-$250 so it is getting close to the point where I would take some trading profits, but that’s the worst I can say about it.

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