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Survey Says… Correction on the Way

When this group runs to the sidelines the market corrects.

The Market

I am not sure what to make of today’s action because the selling was not particularly intense except for maybe 15 minutes in the afternoon and then it was over in a flash.

Look at it this way. Net volume for Nasdaq was -900 million shares today and yesterday it was +1.1 million so over the two days it’s positive while the Nasdaq is down three points. Over on the NYSE, net volume was positive by 2 billion shares on Wednesday and on Thursday it was negative by 700 million shares. So the net there is a gain of 1.3 billion shares while the S&P 500 is essentially flat.

Volume in the QQQs soared, which by now you must realize is happening far too often. When it happens here and there it’s bullish, when it happens several times in a week, it’s concerning.

The number of stocks making new lows did not expand, though, so that is another positive. And there was precious little selling in the Transports and the Russell. In fact the iShares Russell 2000 ETF (IWM) - Get Free Report/PowerShares QQQ ETF (QQQ) - Get Free Report ratio did indeed cross that line.

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But the Utes broke down. And bonds saw more selling; there was no bounce at all from that uptrend line. The charts of the tech stocks, semis in particular, look awful.

And then there is the American Association of Individual Investors’ weekly survey where we see the Neutrals skyrocketed over 40%. Typically when this group runs to the sidelines the market corrects. Previous peak readings have been over 50% but over 40% has tended to see the market stall out and/or correct.

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Tomorrow is the end of the quarter so it’s a coin toss but today didn’t feel to me like the correction in tech is over.

Note: For the upcoming Independence Day holiday I plan to have a letter on Monday morning but there will be no letter again until Wednesday evening. Happy Fourth of July!

New Ideas

I have been asked to follow up on the disaster that is the U.S. dollar. I had thought it would rally and it did, but then it collapsed. So I've just been on the wrong side of this trade for a month now. The collapse in the last few days has been stunning. The best I can do is note that there is support on PowerShares DB US Dollar Bullish ETF (UUP) - Get Free Report around $24.650-$24.60 as it approaches this trend line.

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Today’s Indicator

The put/call ratio today was 98% -- not what I would have expected if we had real panic. But the VIX did surge, only to give it back at the end of the day. The 10-day moving average of the put/call ratio has been milling around at the lows for quite some time. If it surged it’d be bullish, but it hasn’t.

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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 was asked to update my view on iShares iBoxx $ High Yield Corporate Bond (HYG) - Get Free Report, an ETF to be long High Yield. Quite frankly it has held up much better than I thought it would. HYG still looks toppy to me but if it can get back up and over this line I would concede I was wrong.

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The German DAX has rolled over. It closed at that blue dot I have on the chart (12,400). Recall my upside target was 12,750 so it is no surprise that the chart is rolling over. It has not yet broken down, though; through that red line would be the breakdown. A break under the red line would then measure to close that gap at 12,100. If the DAX can rally to 12,600-12,700 I’d likely sell up there.

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I was asked to look at a chart of the German Bunds (10-year bonds) so here is a one- year chart of yields. I would be very surprised if we didn’t see a short-term pause at that red line, which is the highs from February and March. A breakout over that line would give us a next target around 0.4%. My guess is if the Bunds break out the DAX will break down.

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