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The Good, the Bad and the Gusto

Despite Wednesday’s decline, breadth was not bad and the number of stocks making new highs chimed in at 321, while the number of stocks making new lows stopped increasing, and there's the Volatility Index....

The Market

Well that got folks’ attention. I suppose the aggressive Volatility Index call buyer was right: The VIX was set to go up, and do so with gusto.

Let’s get to the indicators. First of all, as you know, the McClellan Summation Index never did turn up from its mid-month turn down, and Wednesday did not help the situation. It now needs a net differential of plus 1,100 advancers minus decliners to halt the decline. So, the S&P 500 is now back to where it was on June 19, which means it has caught up to the downturn in this particular indicator.

The 30-day moving average of the advance/decline line remains overbought, or at least not oversold yet. I have no indication yet as to when that might occur. Mostly it looks like weeks from now. That doesn’t mean we have to slide from now until then, but I often refer to a “good” oversold condition and that indicator reaching an oversold condition is part of what makes a good oversold condition. The chart is shown here each Monday evening.

The Volume Indicator – shown below – got overbought two weeks ago when it tagged 56%. But it’s now at 52%. Readings in the low- to mid-40s are what takes this intermediate-term indicator back to oversold.

Sentiment, as you already know, is relatively elevated, but action like Wednesday's should help wring out some of the complacency. It just takes time to do that.

Now, let me note a few minor positives. Breadth was not bad at all for such a huge down day. The New York Stock Exchange net breadth was minus 1,000. Last Wednesday it was minus 1,350 and Wednesday the S&P was down 11 more points than last week.

The number of stocks making new highs got almost to the June 21 peak reading of 323, when they chimed in at 321. The number of stocks making new lows stopped increasing, too. These are the types of positives that, if they stay with us, will be good news as we head into an oversold condition.

I am going to end by reporting that the dollar has been green for 10-straight days. The Daily Sentiment Index (DSI) is now 94. Using the exchange-traded fund Invesco DB U.S. Dollar Index Bullish Fund (UUP) - Get Free Report, you can see it is just about at resistance. I think we see a pullback within days.

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New Ideas

Philip Morris (PM) - Get Free Report has been a chart I’ve liked, and it was great with the big gap up a few weeks ago, but it has now come down to fill the gap. I would look for it to bounce from this $82 level. Should it trade under $81, I’d consider myself wrong.

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Today’s Indicator

The Volume Indicator’s chart is below:

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Q&A/Reader’s Feedback

As of now Veeva Systems (VEEV) - Get Free Report hasn’t broken the uptrend line that has been in place for nearly six months. What it has done “wrong” is that it hasn’t gone anywhere (in an up market) in about six or seven weeks. So as long as it stays over that trend line, it gets the benefit of the doubt, but I think I’d like to see where it is when the indicators move back to oversold and sentiment gets bearish. If it is still over the line, then I’d probably like it more.

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Zscaler (ZS:Nasdaq) hasn’t broken the uptrend line, so as long as it stays over it, it gets the benefit of the doubt. More importantly though it tagged just shy of $90 last week, if it can hold over the line ($80-ish) it is possible that when the rally does resume it goes into the $90/$100 rule which states 90% of the stocks that make it to $90 will make it to $100.

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Dominion Energy (D) - Get Free Report has broken that uptrend line and fallen right into support. Rallies to the line – at $76-$77 – would be an opportunity to sell.

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I have liked some of the airlines over the last year or so, with United (UAL) - Get Free Report mostly my go-to. I am going to keep my eyes focused on American Airlines (AAL) - Get Free Report now, though. Because if it can hold this $30 area, then perhaps it is the right shoulder of a head- and-shoulders bottom. It’s surely on my watch list.

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Okta (OKTA:Nasdaq) has not broken the uptrend line, but similar to VEEV above, it is essentially the same price it was in early June. A break of $120 could have me thinking the stock has turned bearish.

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