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This ETF Statistic Made a Striking Move

Let's unpack the put/call ratio for exchange-traded funds and what it's meant for stocks over the past several years.

The Market

Note: I am taking tomorrow off; the next edition will be Sunday.

Something occurred during Tuesday’s market that hasn’t happened much in the last several years. The put/call ratio for exchange-traded funds fell under .70.

It is not a death knell for stocks, but curiously, out of the 13 times it has occurred since 2016, eight times it has meant a correction. From December 2015 through 2016, we saw this four times. Three times there was a correction of at least 5%. The instance circled in red saw a mere 1% dip.

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In 2017, the two readings in February did not matter at all. One month later, we saw a minor 3% dip.

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In late 2017, we saw such a low reading and the S&P fell about 1% and rebounded very quickly. Yet in late January 2018 it preceded a quick 10% pullback.

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In early 2019, we had to wait two weeks for it to matter, but it did matter, as the S&P gave up 7% in a heartbeat.

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In October 2019 the market only went sideways before lifting off again, but in February 2020 it mattered — a lot.

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Finally, since the lows last year we see it mattered in late August and then again in late April.

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Will it matter this time? It will if the indicators I follow start to lean bearishly. For example, breadth would have to falter. It wasn’t great today, but it wasn’t awful. New highs contracted a bit today but it’s only one day so far.

Then there is sentiment. The investors Intelligence bulls went up two points to 53.5% so they are neutral now. The ten day moving average of the put/call ratio is heading down. In the next 3-5 days I expect it will be low enough and begin to curl under. That’s usually when we start to get into some trouble. The chart is down below.

There is also the Daily Sentiment Index (DSI) which is not extreme for the S&P, Nasdaq or the volatility index. Not yet. Should they get there I will flag it.

Finally, there is the 21-day moving average of the put/call ratio for ETFs; it is now headed back down. If it goes down much further, this, too, will signal trouble. In the meantime, I continue to see a sideways market with the group rotation and chop that has been the hallmark of 2021. Perhaps the employment number on Friday will set us up for more volatility next week. That remains to be seen.

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New Ideas

We have looked at Wayfair (W) - Get Free Report with a positive eye several times and it never seems to breakout, yet I cannot help myself when I stare at this chart thinking it really ought to breakout.

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Two weeks ago, when Coinbase (COIN:Nasdaq) traded under $220 and reversed, I flagged the chart as a potential for an island bottom if it gapped up over $240. It never did that. Yet, I think the chart has seen the bulk of the selling and since it is such a short chart (in terms of time traded) the price is a tough call. But keep an eye on it, because if the selling is drying up the next move ought to be up.

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Today’s Indicator

The 10-day moving average of the put/call ratio is discussed above.

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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.

The question is if it is time to pull the plug and give up on IBB (IBB:Nasdaq), an ETF for biotech stocks. I am still using a stop in the $147 area, but I admit that it is starting to get dicey, because it has not been able to get going. So, I will stick with a stop under $147 for now.

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Alphabet (GOOGL:Nasdaq) hasn’t done anything wrong yet, but it is simply not going anywhere special, unless it can get itself up and over $2,400 in a hurry. If it drops back to that line around $2,300 I might be willing to have another look but right here it seems like I prefer to wait for over $2,400 to prove itself.

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MagnaChip Semiconductor (MX) - Get Free Report has me intrigued. I Like the way it closed the gap at $21 and bounced off the uptrend line. I’m inclined to like it as long as it can stay over $22-ish (the uptrend line). I think it probably takes some time to work if it is going to work, but the risk/reward is not bad here.

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My inclination is to avoid Home Depot (HD) - Get Free Report here. A break of that $310 area would measure down into the $280 zone. If I am wrong, then we’ll know it if it can get itself up and over $320 with some oomph.

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