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Handle With Care

The market feels fragile when so many stocks go down and the indices hold up.

The Market

Remember in the spring when momentum stocks and small-caps did nothing but go down? And yet the S&P 500 sat there like a queen bee, totally unaffected? This market seems like the inverse without the violence.

Ever since the small-caps got moderately oversold a few days ago, they have milled around. I’d call it a rally, but I am not sure we can consider a 7-point rally more than a respite from the selling. However, two trading days ago (Monday), the low on the S&P was 1967, and today’s low was 1962. On Monday, there were 60 stocks making new lows, and today there were 55. That is the first sign we have seen of a positive divergence and the first time we have seen -- in the month of July -- a respite from the selling.

In the spring, the S&P mostly churned with an upward bias after that initial selloff, while the small-caps and Nasdaq continued to get pounded. Now we have the small-caps and Nasdaq holding and having an upward bias while the big-caps aren't necessarily getting pounded but they do not get the love they were once getting. There has been a lot of selling in these names.

Yet all we see is one giant game of group rotation. Two weeks ago, 1985 was the battleground, and we could not get through on the upside without dribbling over the line and stalling. Now 1970 is the battleground, and we cannot get through on the downside for more than a dribble.

There are simply too many big-cap stocks that do not act well. There are too many big-cap stocks that have gapped down and are now broken. Just consider that NYSE breadth made a lower low today, compared with the July 17 low, and it has now been red for five days in a row. It has been almost one year (last August) since we’ve seen so many red days of breadth in a row. Oh, sure, the S&P may be down only 1%, but many individual names are sinking like stones.

The good news from today’s action is that the above- mentioned new lows are contracting. In addition, the put/call ratio for exchange-traded funds (ETFs) zoomed up over 200%, and that means there was some short-term panic. The Fear and Greed Index ticked at 20 intraday, but by day’s end it had lifted toward the upper 20s. Again, it’s a save. The market feels quite fragile when so many stocks go down and the indices hold up. Typically that ends with the index following the stocks down. In this market, that has not been the case; in this market the index selling just dries up, and then we go up again. Maybe this time it will change. For now, the small-caps are the oversold ones.

Read Helene's latest column here.

New Ideas

The retailers have been just plain awful all year. The chart of the SPDR S&P Retail ETF (XRT), an ETF to be long retailers, really doesn’t show how much so many of these names are down this year. But the hallmark of this market has been to discover the group that is down and out that everyone hates and rally it.

In the past week I have noted a few retailers that are perking up. Ulta Salon (ULTA:Nasdaq), Target (TGT) - Get Free Report, Wal-Mart (WMT) - Get Free Report and TJX (TJX) - Get Free Report all come to mind. I have liked Coach (COH) as a bottom-fish candidate since now even the value players don’t like it. Yet there is a teensy-weensy head-and-shoulders bottom forming here. Because this stock is so hated and the market is so fragile, I would not give it a lot of leeway, so the stop is at $34. Over $36, we would have a whole new ballgame with a target near $38, up almost 10% from here.

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For those of you who prefer stocks that are not down and out and have no resistance at all overhead, perhaps Nike (NKE) - Get Free Report interests you, since over $80 there is nothing in the way, and the target measures to $88-$90, also about 10%.

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I would make one more comment on retailers: The price of gasoline has come down quite a bit. In my area it's down from $3.80 to $3.20 in the last month. And aren't we going into what typically is a strong season for retail stocks? I would also reiterate that I am not a fan of the oil stocks here. Like the semis, they are over-owned and over-loved. The Market Vectors Oil Services ETF (OIH) - Get Free Report has support here at $55. A break of $55 would complete the small top that is in place as it measures to $52-ish.

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Today’s Indicator

The volume indicator is heading toward an oversold condition.

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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.

The CurrencyShares Euro ETF (FXE) - Get Free Report, an exchange- traded fund to be long the euro and short the dollar, has a measured target around $129.50. In the near term, we see a spike low right near today’s low that suggests a near-term bounce is likely. If it manages a rally back to $133-ish, I’d sell it there.

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Zoetis (ZTS) - Get Free Report had a breakout back in early June when it crossed that downtrend line. This would give it a measured target in the $36-ish area. So unless this breaks the recent lows of $32, I would look for it to eventually make its way up there.

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I am a sucker for a down-and-out stock that is building a base, and Urban Outfitters (URBN:Nasdaq) falls smack into that category. I think it is somewhat overextended in the near term, but I would love to see it get up to $37-ish and then consolidate before breaking out. If I have to guess, I would say this is about 60% to 70% through the base, so this has some time to do some more work.

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If you are looking for a retailer, do look at Ulta Salon (ULTA:Nasdaq), which was shown here last week; it’s a base.

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