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Extreme Chop

On up days, it is going to feel like stocks will never come down again and on down days it is going to feel like you didn’t sell enough. Let's analyze what's going on.

The Market

That was a better day. But it was also what I had in mind when I said I think the chop is going to be difficult.

Here's the deal: On up days, it is going to feel like stocks will never come down again and on down days it is going to feel like you didn’t sell enough, because they might not stop going down.

What I will continue to focus on is breadth. Today’s breadth was good, very good. But overall we still have to keep a close eye on it, because the S&P made a higher high and breadth did not.

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The McClellan Summation Index got saved from rolling over, but here, too, we need to focus because now the cushion is negative 1,000 advancers minus decliners, which will halt the rise. Keep in mind we came into the week with that cushion at negative 2,100, so that’s why it needs to be watched. If breadth stops working, we’ll be right back where we were last summer.

Keep that in mind as you look at the number of stocks making new highs. Nasdaq’s new highs are about one hundred fewer than they were earlier in the week. So you can see, while today was a welcome result, it didn’t change much.

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On the sentiment front, we also need to focus. The put/call ratio at .66 was the lowest since early July. The National Association of Active Investment Managers (NAAIM) increased their exposure to 103, the first reading over 100 since April. The Summation Index was already heading down by early July, so that’s different than the current climate, because in early July folks were quite bullish, while the majority of stocks were already in downtrends. Remember, too bullish sentiment is not bearish on its own, it is bearish when breadth is not confirming. And that is why the next several days will be important.

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New Ideas

I have been staring at the chart of Cummins (CMI) - Get Free Report for days now thinking if it can just get over that $245 area it will start to shape up. I still think that. Be aware that earnings are out Nov. 2 though.

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Travelers (TRV) - Get Free Report has essentially gone sideways for most of the year. If it can ever breakout it should be a decent move.

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I want to follow up on Starbucks (SBUX:Nasdaq), which I was asked about recently and which just reported. I has thought it had a chance at filling that gap at $118 and it failed to do so. Now it is trading around $110 after hours. If that area breaks, it will complete the head-and-shoulders top.

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Today’s Indicator

The 10-day moving average of the put/call ratio is still working its way lower, but whereas a week ago it was still at .90 it is now just under .80. It shows how bullish folks have gotten.

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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.

Taiwan Semiconductor (TSM) - Get Free Report is a chart I have liked before and it has refused to get itself out of the range it has been in since last spring. Yet I still have hope it will one day be a good stock. There is a small potential head and shoulders bottom within the giant sideways trading range too.

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Whirlpool (WHR) - Get Free Report is an interesting chart, because the earnings weren’t spectacular due to supply shortages -- yet the stock tried to break down and couldn’t. If it can get up and over 2$15 it would clear the downtrend line and the spike high from last week. And that would change the look of the chart that has been in a downtrend since May. It won’t clear resistance but changing the pattern is the first step.

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Bloom Energy (BE) - Get Free Report just broke out and did it on a gap up. It measures to $36-$38, so dips back to the breakout near $26 are buyable. I would just be cautious if a dip didn’t hold and kept sliding.

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