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Mega Caps Headed to the Backseat

Here's what good breadth, upside volume on Nasdaq and bonds tell me about those tech stars.

The Market

It’s been at least a month since we saw breadth this good for two straight days. That’s a plus. Another plus is that over on Nasdaq 86% of the volume was on the upside. That is the highest since mid-May. I think that means my view is correct in terms of the mega-cap tech stocks gearing up for a back seat in the next month or so. How do I conclude that?

Because they are so high priced that when they rally they do so at the expense of almost everything else. That means the volume tends to have a poor showing.

Upside volumes tend to be light. The McClellan Summation Index using volume for Nasdaq tends to head down, and so I take that we had 86% of the volume on the upside as a sign that volume didn’t flow into mega cap tech, it flowed elsewhere.

Let me note something else: Bonds have gone nowhere in a week. That’s not such a big deal, but if interest rates have stopped going down for now, it gives some breathing room to stocks outside of mega-cap tech. I continue to believe the iShares Barclays 20-plus Year Treasury Bond (TLT:Nasdaq) fund is more apt to go sideways than anything else, and I think that gives some room for non-mega-cap tech to enjoy some love.

Here’s the fly in the ointment: The daily sentiment index for Nasdaq is right back to 90. A day or two of pulling back should reset that, but keep in mind the best thing we can see is mega-cap tech takes the index down, while the rest of the market hangs in there.

Keep in mind that the S&P, as it nears 4500, will once again run smack into that channel line that has kept every rally from running away on the upside since the spring.

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In general I thought today was a good way to start an oversold rally. I think if we pull back in the next day or so, we will try to rally again on the upside before the week is out.

New Ideas

The best part of the day was that SPDR S&P Biotech ETF (XBI) - Get Free Report rallied and is now up 7% in two days. I think that $130 area gives it some pause on the first visit, but cracking over $125 was a good start.

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The transports in general traded pretty poorly today, but I cannot help myself that I am drawn to them and think they are trying to form a bottom.

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I was asked to follow up on Toll Brothers (TOL) - Get Free Report, which I recommended a few weeks ago. It continues to hang in here and as long as it holds over this $57 area I am willing to stay with it. New home sales are out in the morning.

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Finally, the reversal in Alibaba (BABA) - Get Free Report looks to me as if it can rally to fill that gap near $170.

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Today’s Indicator

The 30-day moving average is oversold. There is a caveat, though. It gets back to overbought just as we enter September. So it’s not the type of oversold reading that gives us a multi-week/month run.

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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.

Air Products (APD) - Get Free Report has met its downside target, or at least the top of it at $260-$265). Now it needs to see if it can hold here and build on it. Any rally to the $275-$280 area should get rebuffed by resistance the first time up. It took four months to build the top and that usually means it will take a few months of sideways action if it is to be able to eat through this resistance overhead. The first step is getting it to hold $260-$265 and then rally.

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Tyson (TSN) - Get Free Report should hold here and rally, but these are the sorts of charts I struggle with, because it was up on a spike and therefore the breakout looks late, not fresh, so they often pullback more than you want them to. I would be inclined to hold on since there really ought to be another rally after this pullback.

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NortonLifeLock (NLOK:Nasdaq) met its upside target when it tagged $28 in June. It should try to rally some more, but that spike high at $28 is going to be problematic, because there is the June high and the July high up here. In other words, in the very near term I suspect that area is tough to eat through. I’d call the chart a hold.

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