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Something Doesn’t Look Right

Let’s discuss this put/call ratio and how it’s in territory we don’t see too often.

The Market

Well, not only did we get the rally, we got a rally into the close. That has been something the market was unable to do last Wednesday and Thursday.

What it did was give us the Daily Sentiment Index at 91 for the S&P. Nasdaq remains unchanged at 93. I want to remind you that Nasdaq has been at 93 for three trading days, so it doesn’t mean the market must go Tuesday, although I do think the likelihood is high we pull back this week.

There simply wasn’t a lot of buying in the market Monday. The breadth was positive, but for a market where the S&P tacks on 50 points, it was nothing to write home about. Think of it like this: Last Monday the S&P was up 44 points and net breadth was positive 1,560 and now it was positive 1,150. Not great.

It was, however, enough to get the McClellan Summation Index to stop going down. It took five straight positive breadth days just to get it to stop going down. It now needs another positive day to get it to turn back up. What that tells me is breadth is OK, but it is not leading the way it was six weeks ago. Six weeks ago breadth was leading the indexes, which for me means the market is in better shape when that happens.

In any event, I want to discuss the Index put/call ratio. I do not typically discuss this because it rarely says anything different than the other put/call ratios, but it has just moved to a higher high (the 21-day moving average) and is now at a level not seen since 2011. The curious part is none of the other put/call ratios say the same thing, and that is rare.

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I would point out two things regarding this. The first is that with the equity put/call ratio so low, it seems folks are saying, “I like my stocks, but I don’t like the market.”

The only other time I can find that the Index ratio’s 21-day moving average was high while the equity ratio’s was low was April 2010. This was a few weeks before we had a Flash Crash in May of 2010.

That is not to say I expect a Flash Crash (who could foresee that?) but it is to say this is very unusual and when we get such divergences, I pay attention.

The other point to make on this chart is that the Index ratio’s moving average was also high heading into January 2016. Within a month the market whooshed, paying those with puts nicely, and made a low. In other words, it seems this indicator tends to rise in times of high volatility or just prior to high volatility. Speaking of the Volatility Index, it was green Monday.

New Ideas

I know I keep coming back to the chart of United Airlines (UAL:Nasdaq), but as long as it stays over $30 it continues to have my interest.

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Today’s Indicator

I typically show the 30-day moving average of the advance/decline line on Monday evening, but I want to show Nasdaq’s McClellan Summation Index using volume, because you can see it is heading down. It won’t take much to turn it back up, but this last week’s action says the participation hasn’t been broad.

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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 was asked to look at Nvidia (NVDA:Nasdaq) again, because it has gotten so close to the $400 target I calculated for it. That still seems like the right place for it to have a correction from. The concern comes if or when it breaks that lower line.

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Remember when Slack Technologies (WORK) - Get Free Report was all the rage? We had a good trade in it, but then earnings disappointed and everyone forgot about it. Yet $30 is support, so perhaps it starts to improve from here. As long as it stays over $29-$30, it should be OK.

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Align Technology (ALGN:Nasdaq) looks to me like it is failing at resistance. I’d consider myself wrong if it rallied over $300.

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