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Seasons Make for Poor Indicators

Everyone knows it's fall. Now that that's out of the way, let's look at breadth, new highs, and more.

The Market

I’m going to discuss breadth. I have to. Because, you see, it was never truly positive during the trading session. Despite the S&P 500 rising 15 points midday, breadth at best got to flat. As we have discussed, that’s where the problems start.

In the end, net breadth was negative 1,325, which is neither good nor bad. The McClellan Summation Index is still heading up, now requiring a net differential of negative 2,200 advancers minus decliners to halt the rise.

I am much more concerned with the number of stocks making new highs. Let me delve a bit more into this. If we can’t see more new highs now with the S&P 100 points higher than it was in early November, then that means the stocks that were making new highs in early November are now making lower-highs. We’re not even adding to it, we’re subtracting from it.

And that was the case again today. The New York Stock Exchange saw 54 new highs, which is about half of the reading we saw two weeks ago. Nasdaq had 87 new highs, which compares to 140 in early November. I take this to mean there is a lot of churning around in the stocks that had been leading us upward in October. As I noted last week was about the mega-cap tech names playing catch up and dragging the indexes upward.

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So, the best news of the day is that everyone who warmed up to the market last Thursday and Friday is now cautious again. Well except for the nonstop chattering about how good seasonality is for the market.

I am not a huge fan of seasonal trades, because I’ve seen it work and not work, but when the whole world is in that camp, my antenna go up. I would just note that off the top of my head I can think of many Decembers that saw the market pull back, so I will not get sucked into "seasonality."

I do think the market should rally again before we get fully overbought near Thanksgiving. But if those new highs do not improve then I am likely to start discussing an uptick in volatility in December.

New Ideas

I am going to watch the chart of SPDR S&P Metals & Mining ETF (XME) - Get Free Report very closely, because it crossed the downtrend line and so far is holding it. Should it cross back under 50 I’d have to consider this a failed breakout.

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We have had a great run in sleepy old Intel (INTC) - Get Free Report these last five or six weeks, but the stock is at some minor resistance. I would take a few profits here. I’d love to see it back in that $27-$28 area.

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Today’s Indicator

The 30-day moving average of the advance/decline line should be overbought next week.

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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.

I am intrigued by the chart of Shopify (SHOP) - Get Free Report, but I’m not sure I trust it to breakout and hold it. For the next week or so I will give it the benefit of the doubt but if it can’t breakout before then I am going to think it needs more work before it can break out.

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Whirlpool (WHR) - Get Free Report is nearing resistance from the downtrend and it fills the gap at $160 so I would think it needs a pullback from here. If it pulls back to around $140 (blue line) I would expect it to hold and bounce from there.

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United Health Group (UNH) - Get Free Report has not broken yet and each time I think it will finally break, it seemingly comes back from the dead, but notice that for all the terrific-ness in the Dow Jones stocks it is the same price it was in April. For now I would think it bounces off that uptrend line ($500-$505, but rising). Any rally to a lower high though I would think means the chances of breaking the uptrend line the next time down are high and rising.

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