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Lots of Bets on a Higher VIX

This is what happens when so many finally see the flat market.

The Market

Sentiment is shifting. Again. Can you hear it?

Everyone who was bulled up for the last five weeks woke up and decided we're just chopping about. Yes, I know they were slowly deciding this a week ago, but now it is common thinking. I hear it everywhere. And perhaps that's why the put/call ratio for the VIX sunk under 20% today.

This means the buying of calls relative to puts for the VIX is extreme. When this particular ratio is so low, it tells us there are far too many bets on the VIX going higher. I guess that's the result of so many finally seeing the flat market. They must feel we're in for a round of volatility (I would not argue that). Typically when we see the put/call ratio for the VIX sink so low, we see the market stage a rally not long after.

This does not mean we will see a rally Tuesday, but if I had to bet, I'd go with an up day. Why? First of all, in late December we saw this put/call ratio sink under 20% not once but twice, on Dec. 23 and 28. We had a few more down days and then wham, the upside showed its face in the first few days of the New Year.

Let me explain, though, that the indicators (discussed in full in Monday morning's Letter) aren't where they were in late December, when they were just plodding along.

Here's a scenario I can generate in my head: We rally Tuesday and everyone stops chatting up the flat market. It relieves some of the recent caution that has developed by us not going up. And then we can come down again. Of course, this scenario keeps that very frustrating chop alive.

In the meantime, some are referencing the dollar and bonds, so I want to note the dollar versus the euro is discussed below. We have looked at the chart of yen/dollar several times using the Currency Shares Japanese Yen Trust (FXY), where I had noted that over $83 it would turn positive. But $86 is proving to be resistance. I do think this will rally again and I remain hopeful it gets through $86, but that's the new level to focus on. A failure to get through that area and I would give up.

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As you know, I have been a fan of the bonds, using the iShares 20+ Year Treasury Bond ETF (TLT). My target on TLT is near $124 to $126 (so we'll call it $125), but today's rally in bonds saw the utilities left behind. I find that bothersome, so I will now use a stop on the TLT under $120.

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In sum, I still think the upside of the market is limited, but the longer we mill around it seems the more company I have. Too much company in my camp and I start to fret.

New Ideas

Since I am still a fan of Potash (POT) , I get asked about Mosaic (MOS) - Get Free Report. I still like Mosaic, but it has disappointed me countless times. I have a target in the upper $30s.

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There is no reason to like the retailers; they act awful. I am still partial to Michael Kors (KORS) and find myself warming up to Macy's (M) - Get Free Report. I think I am early (translation: there may be one more flush in the stock) but the volume has dried up and it is starting to attempt an oversold rally. Keep your eyes on this for signs it wants to go up because it is starting to feel like it is tired of going down.

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Today's Indicator

The McClellan Summation Index is still heading down, despite today's better breadth.

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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.

Vodafone (VOD) - Get Free Report has a small bottom in the making. The base it broke out of measured to $26.50, so it has achieved its initial target, but as long as it stays over $25.50, it should be considered a potential bottom, albeit a small one. I do not have an additional target, though.

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When it comes to the dollar versus the euro, it has been a one-way street since the S&P first tagged 2270 in mid-December. Using the CurrencyShares Euro Trust (FXE) ETF, I think it has the potential to play out as I have drawn in blue: into resistance in the $105 to $106 area, a pullback to form a head-and-shoulders bottom and then up again.

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Qualcomm (QCOM:Nasdaq) has collapsed and left an island overhead. That island is bearish on an intermediate to a longer-term basis. On a shorter-term basis, QCOM has bounced off support. It has filled a gap from July. It has a measured target in the $52-ish area as well. I tend to prefer to wait three days to see that the stock wants to hold, but in terms of price I think it is likely in an area it should start holding and bouncing.

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