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No Joke: Wednesday Was Not That Great

There was little to love (or laugh) about the statistics on April 1, but let’s delve into the indicators, including new lows and volume.

The Market

I would have liked it if Wednesday’s decline had waited until next week, but the market had something else on its mind. There was very little to love about the day’s statistics, but let’s delve into the indicators.

First of all, it was yet another day with 90% of the volume on the downside on the New York Stock Exchange. Yet, overall volume for the NYSE was on the relatively low side, at least relative to what we’ve seen. Nasdaq’s volume was the lowest in a month. That’s a change. We have been seeing high volume declines.

Let me stop and discuss this point. The market has seen high volume declines and low- volume rallies for the better part of the last decade. In fact, it’s probably been longer than that. I do not know if this is going to turn into a change in character for the market – by that I mean low-volume declines and higher volume rallies – or if it means the selling is drying up. I’m inclined to think the latter, but I am open.

Next, the number of stocks making new lows increased, but on a relative basis. The 116 new lows on the NYSE is not a big deal. Recall that on March 12, we saw 2,377 new lows. When I discuss a retest of the lows, I am looking to see if this retest will be successful. A successful retest is when we break a prior low and there are fewer stocks making new lows, less downside momentum, better breadth, and generally higher lows in the indicators. That’s what makes it successful.

Should we break the prior lows and those indicators do not show positive divergences, then the test was not successful. So should we break the lows right now, we’d want fewer than 2,377 new lows on the NYSE for starters. That is still not my base case, as I think the next trip down to break the lows is a few weeks out in time.

So, with 116 and the S&P essentially 300 points higher than the prior low, the jury is still out. But my speculation is that there would be fewer new lows.

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Let me also note that the Volatility Index, while up, was not up as much as one would think it ought to be.

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The put/call ratio was once again high, which is forcing the 10-day moving average back up, so it’s a toss up on if it is bullish or bearish. One can make the case for both.

What I can tell you is that I believe all eyes will be on that gap down below, should we come close to it. I’d rather see us rally to fill the morning’s gap, because if the market goes into an up/down/up/down mode, it is harder to make money. But it is easier for stocks to work out price levels that they find comfortable, which in turn sets up better charts for trades.

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New Ideas

I want to revisit the chart of Shopify (SHOP) - Get Free Report, which I was asked about recently. At the time, I said I thought it was likely a buy again on the gap fill at that $375 area. It is now closing in on it. I bring this up, because I also thought Wynn (WYNN:Nasdaq) was a good buy on the gap fill, and you can see all it did was pause there before plunging lower. Be cautious if there is no bounce from the gap fill.

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Today’s Indicator

The Volume Indicator rose to 40%, so it’s still in oversold territory, but remember I always look for this indicator to double tap, meaning up then back down again. Yes, we call that a retest.

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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.

Cinemark (CNK) - Get Free Report is the perfect example of a stock about to have a test. Remember not all tests are successful; some fail. If that spike low can hold, then CNK should rally. In fact, my guess is there is another rally from this area, because spike lows rarely break the first time they are tested. If it rallies to $10 it’s probably a sale.

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Pinterest (PINS) - Get Free Report is still in the middle of nowhere. A rally to $18 would be a good place to sell. But there is likely still a retest down below at or near $10. Therefore, with the stock at $14, it’s in nowhere-land.

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United Technologies (UTX) - Get Free Report should find a bit of support at $85 but as you can see there will be resistance now at $95 to $105. There is an entire process these stocks need to go through to absorb all the selling that will take place overhead and to see if the buying that came in last week returns. That’s why I keep saying there will be so much testing and retesting. A general rule of thumb has been to measure the length of the top to give an idea of the bottom. The top was six to eight months in duration so the base should be at least three to six months.

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I don’t much like stocks that are up already in this sort of market, so I’ll just note that Docusign (DOCU:Nasdaq) has a measured target around $120. I doubt it will get there in a straight line, but now that the stock is over $90 the 90/100 rule takes effect. That means 90% of the stocks that make it to $90 make it to $100. Always be aware that 10% don’t.

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