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The Bad News (and Good News) Bears

Let's look at the negative and positive side of the ledger for Thursday.

Lately, each day I begin by noting the positives, but today I am going to start with the negatives. They would be similar to the negatives for the last week or so: The funds of HYG (HYG) - Get Free Report; JNK (JNK) - Get Free Report and LQD (LQD) - Get Free Report continue to be awful. That means the credit markets remain difficult.

I would put this week’s American Association of Individual Investors’ weekly survey in the “maybe” category. The bulls are still 34%, which surprises me. But the bears were 51% again this week, which takes the four week moving average up to just shy of where it was at the December 2018 low. One more week of high readings would probably see it peak.

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Now let’s move to the positive side of the ledger. Breadth was good. The Russell 2000 outperformed by a lot. Once again, new lows did not expand -– more on that below. The Volatility Index backed off. The McClellan Summation Index is still heading down but it now needs positive 2,800 advancers minus decliners to halt the decline. This is the closest we’ve seen it in over three weeks.

But let’s talk about the 10-day moving average of some indicators. We’ll begin with the stocks making new lows. It is now possible for the 10-day moving average to peak in the next two to four trading days. That is provided the new lows continue to contract. That last peak you see was Dec. 27, 2018 so it was a few days after the low. As a reminder, that low was unusual in that it was “V” shaped. I do not expect a “V” of any sort once we get a low. I expect there will be ups and downs, likely with lower lows over months.

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The next chart is the 10-day moving average of the ISE Call/Put Ratio. Think of this like the inverse of the put/call ratio. It tends to turn up when the market is near a low. Is it perfect? No. But it does a good job in general. It turned up Thursday.

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The 10-day moving average of the equity put/call ratio is now at 98%. This is actually a smidgen higher than it was at the peaks in 2008. While you cannot see it, on the chart there were rallies off those peak readings. But again, note that there were months to go before the market repaired itself and made a real low.

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Finally on a shorter-term basis, the rally did not take the Daily Sentiment Indicator (DSI) for the S&P back up over 10, which I will take as a sign folks did not love the rally enough. Once again, we have not had two consecutive green days in five weeks so if we can get that I think it changes the pattern.

New Ideas

Note that for the most part, the stocks we’re discussing these days are for trades only. If they don’t work quickly I am in no mood to sit and see if they will work. And I would be quick to take profits if I got them.

I was asked about ASHR (ASHR) - Get Free Report, an exchange-traded fund to be long China and since I thought it was an interesting chart, I am showing it here. The stop is very clear: trade back under $25 and this is awful. And maybe it tries to get back up to resistance in the $27-$27.50 area.

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Today’s Indicator

The put/call ratio is discussed above.

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.

Vir Biotechnology (VIR:Nasdaq) has held up well during the rout. I have no idea if they have a drug for coronavirus or if they are involved in anyway, but as long as it holds over that uptrend line it’s a decent chart.

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Pfizer (PFE) - Get Free Report is one of my biggest disappointments, as I really thought it had promise, even after it filled the gap at $40 that I had as my initial target. I thought it would pullback and rally again. Yet it never did. The best news I can offer now is that there is a measured target around $30. If it breaks that, then the next target is $27-$28.

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FedEx (FDX) - Get Free Report is another disappointment, because it acted so well in February — until it didn’t. It has since come alive. If it can fill that gap in that $125 area, I’d consider it a good place to exit. If you are feeling very hopeful then you can wait until $140, but I suspect there will be several ups and downs, before it can get there.

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