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Rally on Thursday, but That’s Not the Whole Story

A host of negative divergences were unleashed, and, yes, I still think we’ll fall Friday or earlier next week.

The Market

The rush to own value over growth Wednesday disappeared Thursday as if a magician had waved his wand. That means the market had a host of negative divergences.

For example, breadth was negative Thursday. That means there is now a divergence you can actually see on the chart between breadth and the S&P 500. Perhaps it will change in the coming days, but right now it’s a negative divergence and a glaring one.

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It also means the McClellan Summation Index is stuck. It stopped going down, but hasn’t turned up. It also means that the number of stocks making new highs is currently having a negative divergence — on both the New York Stock Exchange and the Nasdaq.

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Also please keep in mind that the SOX had a flat day, while Nasdaq zoomed ahead. That means the ratio of the SOX to Nasdaq is still precarious.

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What is good news, though, is that the selling in the value stocks was minimal. What’s good news is that the American Association of Individual Investors weekly survey showed very little change, so there was no big rush for them to turn back to bullishness. The bears continue to edge out the bulls by a small margin.

The DSI for the Volatility Index did not change at all. It remains at 12.

I still think we should see a pullback, if not Friday, early next week. The Employment number Friday could be a market mover.

New Ideas

CME Group (CME:Nasdaq) has earnings out next week on Wednesday, but I find myself drawn to the pullback in the chart. It has retested the breakout, so as long as it stays over $210 I like it.

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Today’s Indicator

The 21-day moving average of the put/call ratio for exchange-traded funds is showing far too much complacency.

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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.

I have about 30 different scenarios for the chart of Hill-Rom (HRC) - Get Free Report. First it hit its measured target when it got to $116. Then it created an island when it gapped down in mid February. These two factors make the chart a negative, or at least a “not positive.”

Then there is that the gap down that took the stock right back to the breakout, which is a positive development.

Here’s how I would sum it up: A trade up to fill the gap at $112 would actually be a positive development, because it takes that island away. A failure to do so with a subsequent cracking under that line would be very bearish. Therefore, as long as it stays over $106, the possibility that it improves goes up. Right now it’s a big question mark.

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We had a terrific trade in Pan American Silver (PAAS:Nasdaq) heading into year’s end, and it is now curling under and trying to improve. So as long as it stays over $21, it gets the benefit of the doubt on the upside. It set to report on Feb. 19.

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Now that IBM (IBM) - Get Free Report has surged on the new CEO news, I was asked where it measures to. The target is not much higher than here, it’s in the low $160s. But if the stock can flag and consolidate for a while, it is possible we’ll be able to measure a new target. It needs a rest.

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