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Ratio Goes Off the Charts

Call/put numbers distract from market breadth.

The Market

As you can imagine, there was another shift in sentiment today. This time I can offer something statistical since the equity put/call ratio ticked over 70% for the first time since Nov. 1.

There is a flip side to that: The ISE Equity Ratio jumped to 334% today (this is a call/put ratio rather than a put/call ratio, so whereas a high put/call ratio is bullish, a high call/put ratio is bearish). That is so off the charts that we haven't seen anything remotely close in more than five years. You can see it on the chart below. It has not been terribly bullish; it's been bearish when it's that high.

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But I would rather discuss the breadth of the market. It wasn't good but it wasn't awful. To give you an idea, the S&P lost almost 12 points on Oct. 25 and net breadth was -1,455. Today the S&P was down 14 points and net breadth was -870. How does this affect the McClellan Summation Index? It continues to go lower, but what it also does is push it to the point where it needs a net differential of +3,000 advancers minus decliners to stop going down. Typically at +4,000 we are mighty oversold.

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The other issue is that the number of stocks making new lows continues to expand. Today the NYSE saw 150 new lows, which is getting very close to the peak reading we saw in late August when the market was much lower. New lows must start contracting for a positive divergence.

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The best news of the day is that the ratio of the Russell 2000 ETF (IWM) - Get Free Report to the Nasdaq-100 ETF (QQQ:Nasdaq) has continued sideways and not broken to a lower low.

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We are heading to an oversold condition and sentiment, while no longer too bullish, is not yet "too bearish." I'd like to see "too bearish." And I'd like to see fewer stocks making new lows. If we don't get that, then all we'll get is an oversold condition. Remember, oversold with bearish sentiment is bullish.

New Ideas

Olympic Steel (ZEUS:Nasdaq) is trying my patience. It keeps looking to me as if it wants to round under and rally again and then it just sits here. I really do not want to see it break under that line around $18.

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Today's Indicator

The Volume Indicator is at 48%. It did get oversold in the 47% area twice this year, but typically it takes something closer to 45% or lower to get oversold. Either way, it's heading there.

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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.

I am not a fan of the way Verizon (VZ) - Get Free Report went from a new high to a collapse in the course of a few weeks, but it is filling a gap down here so I would expect a bounce from these levels.

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U.S. Bancorp (USB) - Get Free Report went from a new high to collapse as well. That resistance at $52.50 is going to be tough to get through. I would not buy it and would pay close attention near $52.50. Failure to get over that and I suspect it retests that September low.

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I cannot recall the last time I liked the chart of Eli Lilly (LLY) - Get Free Report and I'm not sure I do now. If it can go sideways in this low $80s area for a while, I might be interested because it had built a base, but otherwise it looks to me as though it had better hold over $81.

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