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Getting to the (Square) Root of It

Don’t expected a ‘V,’ ‘U’ or ‘W’ pattern, but this, instead....

The Market

For weeks now, I have been showing you charts that basically show a pattern that is not a “V,” not a “U,” not even a “W,” but more of a square root. Think of that rally off the November 2008 low, when it had a terrific V. and then a big sideways with an upward slant.

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Think of that post 9/11 chart where we had a terrific V and then a big sideways.

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In case you have forgotten math from your elementary school days – haven’t most of us? – here is a picture of a square root symbol.

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Once again, I would point out that the market is a little bit overbought on a short- term basis using some measures and perhaps a bit more using others. But it isn’t yet intermediate-term overbought. That’s why I have used those two examples (2001 and 2008) since I think it takes time for sentiment to catch up to markets. And I continue to think once sentiment catches up we will be set for some sort of retest.

Or maybe the fact that the small cap exchange-traded fund IWM (IWM) - Get Free Report finally filled that gap overhead and did so as it pushed itself up against resistance.

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We have already seen the Semis, using the Vaneck Vectors Semiconductor index ETF (SMH:Nasdaq) that we looked at midweek last week, run smack into resistance and back off.

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On the sentiment front I think there is a modest change, but not a dramatic one. For example, the 10-day moving average of the equity put/call ratio has come down and now threatens to head back up.

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But the four week moving average of American Association of Individual Investors bears hasn’t budged yet. I do expect to see them drop rapidly in the next few weeks, though. That’s what happens when you replace 50% with 35%.

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This coming week we will get the first earnings reports. I think it will be quite telling, not to see what the earnings or the outlooks are — if they give us any — but rather how stocks react to the earnings. Do they ignore them or do they embrace them? I suspect if stocks ignore any negative outlooks, we will see a larger shift in sentiment.

New Ideas

I am once again intrigued by my old friend NetEase (NTES:Nasdaq), since it looks like it had a nice lift off the lows and is not consolidating that gain before it has another push upward.

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Retailers have had huge surges off the lows. If Tapestry (TPR) - Get Free Report can fill that gap between $17 and $18 I’d sell it there.

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As a follow up on GLD (GLD) - Get Free Report, the most curious thing is that the breakout over the line did not produce a Daily Sentiment Indicator (DSI) reading over 90 as it did earlier in the week. As long as it can stay over that downtrend line and not achieve a reading over 90, I would consider it a plus.

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Today’s Indicator

The Hi-Lo Indicator has finally lifted up off the lows.

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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.

A follow up on Shopify (SHOP) - Get Free Report shows it stopped right where it was supposed to: at the downtrend line. I’d be inclined to take some profits. I’d be wrong if it gets up and over $450 now

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Teladoc Health (TDOC) - Get Free Report continues to maintain its uptrend line and has done nothing wrong. It’s not my style to chase what’s up like this, or what is so obvious in this current situation, but if long I’d call it a hold.

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Philip Morris (PM) - Get Free Report has resistance in the $78-$80 area, so I would expect it to back off from there.

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Starbucks (SBUX:Nasdaq) has some resistance here at $75, but it made a higher high than late March, so I’m inclined to think it backs off and rallies again.

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