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Going to Extremes

More than half the NYSE stocks made new lows – and that’s only part of the story.

The Market

We remain oversold. We also remain in a market that cannot seem to rally from the oversold condition.

We also got an awful lot of selling Monday. We know that because there were over 1,600 stocks making new lows on the New York Stock Exchange and over 1,400 on the Nasdaq. When you consider that the NYSE has approximately 3,000 stocks, that is more than half of the stocks that made new lows. I call that extreme.

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To put that in perspective, at the December 2018 low – actually a few days before it – there were 1,270 new lows and we had been going down for 3 months already then. That’s the speed at which this market has deteriorated.

If you want a further perspective in October 2008, there were 2,900 new lows, which basically means just about every stock made a new low. But the point of this is that these extremes that show up a few weeks after the highs, do not tend to be the lows in the market. They tend to see a rebound and then another retreat back down.

That has been my point for the last week or two. Even if we do get the oversold rally—and I really think we should -- I think we ought to come back down. I have used that chart of the S&P in 2010 several times to show you how long it took to work through the system. Also how many lower lows we saw over the ensuing months.

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There isn’t much more to say except to note that the Daily Sentiment Indicator for the S&P is now 5 and Nasdaq is 4. The Volatility Index has gone to 90. Remember, a month ago the DSI for the VIX was single digits. So on a short-term sentiment front, we’ve seen quite a shift.

New Ideas

Home Depot (HD) - Get Free Report will fill one gap around $205, and another closer to $200, so we’ll call $200-$205 support. But look at the trendline that was broken. A rally back to $222-$225 would be a selling opportunity.

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Today’s Indicator

The 30-day moving average of the advance/decline line is still not oversold. At this point, I still think it doesn’t get oversold until early April at the soonest. That doesn’t mean we can’t rally between now and then, but this indicator finally got overbought in mid-January and has not yet gotten oversold. If you look at 2018, you can see it got overbought in the summer of 2018 and did not get oversold until December. It takes time.

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Q&A/Reader’s Feedback

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That’s a break in Shopify (SHOP) - Get Free Report, so any rally back to that $450-$460 area would be a good place to sell. There is some support around $400.

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Boeing’s (BA) - Get Free Report breakdown measures to the $200 area, so I expect it will eventually make its way there. But it is getting oversold down here.

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Gilead (GILD:Nasdaq) had a terrific run when it broke out of the base. It measures up into the upper $70s, but my guess is it will have another rally after backing off. If you bought it before the breakout it would probably be a good idea to take some profits.

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