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That Wasn't Much of a Rally

But there were still some changes worth noting.

The Market

We got the tech rally, or shall I say the rally in the QQQs, but you have to admit it was pretty pathetic.

Yet breadth was good again on the NYSE. And the Russell 2000 and the transports made new highs. Those have been the centerpiece of the rally, so there is no scoffing at that.

There were two notable changes, though. First, let's talk about the McClellan Summation Index. Down below you will see it is still rising. This is bullish. What is not bullish is that it is still at a lower high than it was in July and March. It would take a net differential of -1,000 advancers minus decliners to halt its rise, so when we consider we haven't seen breadth that poor in almost a month, it is worth noting that if we ever got any selling breadth-wise the rise would come to a halt.

But here's where it gets interesting. For Nasdaq, I use the up and down volume figures, not the breadth figures, for the Summation Index. And that is far from its previous high and it stopped going up two days ago. Oh, it's not that dire, an up day with net volume of +200 million will send it upward again, or at least save it from rolling over, but it does show underlying weakness.

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It's certainly something to watch, especially if tech and Nasdaq have another bad day. After all, despite the 10-point rally for Nasdaq today, net volume was +86 million shares, which is essentially a flat day.

I have two other observations to share with you. Bonds were down today (rates up) and banks did not go anywhere. They have not gone anywhere in days, but that seemed OK because rates were heading back down. I will monitor this because the Bank Index still has not made a higher high. So far, it looks like a rest at resistance, but that can change.

The other observation is that many oil stocks stalled out today as well. As you know, I think oil stocks have run too far too fast and there is too much bullishness. They are not negative, just in need of a rest.

New Ideas

Last week, I recommended Colgate (CL) - Get Free Report despite the fact that I mostly do not like the Consumer Staples Select Sector Fund (XLP) - Get Free Report, the ETF for the majority of the names in the group. It has had a wild ride since then, having rallied, collapsed and then gapped up. I still like it, although I admit it is hard to find a target. For now I would stick with that spike high at $74.50 and the resistance near $75 to couch it.

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Today's Indicator

The McClellan Summation Index is discussed above.

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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.

Stryker (SYK) - Get Free Report looks like a textbook head-and-shoulders top. But let me explain how it can be wrong. First, the spike low yesterday was in fact a higher low, showing it is not as weak as it was in August. Second, the rebound today is somewhat robust since it is eking out a minor higher high over the two previous days. Thus I would call the current rally a countertrend rally that should fail, but if it rallies over that downtrend line (currently $144 but it is coming down so will be $143 by next week) then the pattern will be negated. A break of the neckline at $138, should it occur, would measure to about $128, but my guess is those spike lows at $132 would be a good place to cover.

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Valero (VLO) - Get Free Report has been one of my picks in the oil patch for quite some time; we looked at it again about two weeks ago right after it broke out and I was still a fan. The measured target for this move was $74-$76 and it has been achieved. I would lean toward profit-taking even though it has done nothing wrong. A pullback toward that steep line should lead to another bounce, but the move up is quite steep for me now. I feel more comfortable when they are breaking out of bases than when they are up so much already. I'd prefer a pattern to form that looks more like what we saw in late August/early September (sideways for a few weeks).

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We looked at the chart of CurrencyShares Euro Trust (FXE) - Get Free Report a few weeks ago when I noted that the Daily Sentiment Indicator was pushing up near 90% for the euro and I thought a pullback was in order. It has pulled back to the uptrend line, so a rally off this $113 area is likely. A failure in the $114-$115 area is what I expect now. Let's see if it can get that far, and then let's see if it actually fails up there. If it does fail, it sets up a break of that line the next time down.

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High on Tech

High on Tech

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Bond Relief

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