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Making Sense of a Strange Day in the Market

We had some down-and-out stocks get a boost, and then the indexes, too, but then so much else just sort of sat there.

The Market

Well that was a weird day in the market. Why so weird? It felt like we had some down-and- out stocks get a boost, and then the indexes, but then so much else just sort of sat there.

The statistics were OK, but so many charts spent the day as bystanders.

For example, breadth was good. Volume increased. The new lows contracted again – or should I say finally? The number of stocks making new highs was not impressive, but since we’re not overbought yet, I would give it a few more days to see if it can improve.

I know everyone is focused on the small caps. We know iShares Russell 2000 Index (IWM) - Get Free Report finally crossed over $160. It looks like a breakout, but as you know, I care about the statistics. So I want to see if new highs can improve or if breadth can build on the last two days, or both. Let’s take a look at the McClellan Summation Index with the Russell to understand why. That surge in the small caps looks a bit similar to the surge we saw in late April and early May (brown line). Now look at the Summation Index (blue line) since Monday, it did the same thing it did in late April: flattened out, but did not turn up with any oomph. It tried, several times, but each time it never had follow through.

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You can see it would take another day of good breadth to turn it up and then another day after that. So it is going to take some follow through to get the statistics and indicators to significantly improve.

Remember the discussion about the Daily Sentiment Index a week or so ago? When I noted it had gotten to 90 for the S&P 500, and 91 for Nasdaq, and how we typically backed off and saw another reading over 90? Well, the S&P is now at 82 and Nasdaq is at 85, so another day or so of rallying and these could be back at 90. Yet it is the VIX at 10 that has caught my eye. In other words, using this metric, it’s hard to imagine we have weeks of rallying in front of us.

New Ideas

The iShares MSCI Emerging Markets Index (EEM) - Get Free Report has finally rallied. Let’s watch this for a clue, because when EEM rallies and can’t get back over the prior high, it’s been a sign of lost momentum in the market. Those are the blue boxes. The green box represents when it was able to make a higher high.

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Shopify (SHOP) - Get Free Report is trying to map out one of those patterns I tend to like: cross a downtrend line and then retest the line. I’d like to see it get going sometime in the next week.

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Today’s Indicator

The 30-day moving average of the advance/decline line is overbought. It has literally not been in sync with the markets since September. When it was overbought stocks went up, when it was oversold stocks went down.

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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.

Many of the requests the past few days are for down and out stocks that could be candidates for the end of tax-loss selling season. If you have any names, please do not hesitate to shoot me a name or two (or three!). My main bet remains on the energy stocks. The reason I am not as keen on retail is simply because retail stocks tend to make their highs right near Thanksgiving. Sure, this year could be different, but there are many retailers that are up already, so it’s not the entire group the same way energy is.

The best thing we can say about Fluor (FLR) - Get Free Report — not the kind you bake with – is that the plunge in late October did not make a lower low and then recaptured the plunge the very next day. But there was no follow through. The big obstacle is $19 and $20. Crossing $19 stops the downtrend that has been in place since September and crossing $20 gives us the first higher high since then.

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If Natural Gas Services (NGS) - Get Free Report is to form a bottom I think it would have to map out as I have drawn in blue. It seems to me the most important aspect of NGS improving is that our old friend United States Natural Gas Fund (UNG) - Get Free Report needs to hold this line. I would love to like UNG down here as we have had some nice trades in it these last few months, but the DSI is currently $79, which is a bit high for my taste.

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A few things interest me about Macy’s (M) - Get Free Report. First it did not make a lower low on their earnings last week. Second, there is quite a big yield on the stock (currently about 9%). I would love them to cut the dividend and if the stock doesn’t make a lower low that would be a good buy for a trade. Away from that, I’d look for the stock to fill that gap between $16.50-$17 and then see if any serious selling comes in. I am disposed to like it, but I admit I am scared, because the dividend is so high.

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