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Trends Are Now Hard to Catch

Pay attention to the indicators that continue to say "chop," until we can get a decent low in the market, complete with positive divergences.

The Market

Again we rallied. And again I must say the underlying statistics were unimpressive.

Let us begin with breadth. First of all, if you hear anyone say that breadth has not been good, you have my permission to beat them up. Breadth on the NYSE has been just fine. It has made higher highs even when the S&P 500 could not. The divergence comes from the fact that, even with the good breadth, the McClellan Summation Index cannot make higher highs, nor can it seem to turn up and stay up. (The index is shown below, under "Today's Indicator.")

In any event, the last two days have seen a change in the breadth component. Let us do a back-of-the-envelope calculation. On Friday, the S&P lost 15 points, and in the last two days, it has gained most of that back. So let us call it flat.

Breadth, on the other hand, is about a net negative 300 issues. If that were not bad enough, net volume has lost 1.2 billion shares. Perhaps it is because the Russell has been so sickly. But this is not the way a market at the highs should act.

I was asked about calling the pattern in the S&P an inverted head and shoulders. In my view, the index does not have the greatest pattern. For starters, head-and-shoulders "bottoms" are not common at market tops. Secondly, I had to draw the "neckline" through a high, which means the breakout is not clean.

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Some people consider the S&P chart to be a broadening top. In such a pattern, you get a series of higher highs (points 1, 3, 5 on the chart below) and lower lows (2, 4, 6), followed by a retracement rally that comes back into the pattern (7).

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I have seen better broadening tops. Point 3 is not necessarily higher than point 1, and point 4 is not lower than point 2. So the "megaphone" pattern is suspect.

I suggest we pay attention to the indicators that continue to say "chop," until we can get a decent low in the market, complete with positive divergences. Just look at the action today, when consumer staples and utilities made highs and reversed. This is a far cry from what we have seen in the last two weeks. Perhaps when everyone decides that is the trade (buy staples, sell growth), it is time to switch. It is hard to catch a trend in a choppy market -- and that is what is being served up.

Read Helene's latest column here.

New Ideas

I was asked if I saw anything akin to a base in the Market Vectors Coal ETF (KOL) - Get Free Report, an ETF to be long the coal stocks. Sure; if it can cross over this line ($19.25-ish), then the price should make a try for $20-ish. The longer-term measurement -- at least three to six months -- would be in the $21.50 area.

While I do think KOL can get to $20, at this pointit does not seem likely to enough to get all the way up to $21.50. Arch Coal (ACI) - Get Free Report, which had a big base, had a terrific pop that was followed by a drop. Peabody Energy (BTU) - Get Free Report has improved -- and has a big weighting in KOL -- but it also has a lot of resistance overhead. Joy Global (JOY) , a favorite of mine, cannot get out of its own way every time it gets into that $60-$61 area. These stocks seem to suck me in and then spit me out.

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Today's Indicator

The McClellan Summation Index is discussed in full 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.

Netflix (NFLX:Nasdaq) actually completed a head-and-shoulders top when it broke under $340 late last week. However, I do not like it when stocks break down as this one did, in a straight line. They typically are exhausted by the time they break. NFLX should rally at least to $330-ish, which seems obvious to me. What is not obvious is whether it can get back up over $330 by a wide margin. If it can, I will applaud.

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Pioneer Natural Resources (PXD) - Get Free Report still has an unfulfilled target of around $215 (possibly even higher) that I am waiting for. It feels like it will never get there, but that is the target. If it fails to get over $205 on this move higher, the stock will still be OK, but will have missed a great opportunity to do what it ought to have done.

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Brazil iShares (EWZ) - Get Free Report, the ETF to be long Brazil, has had a heckuva move up off that low. It has clear resistance at $48-ish. I would prefer to see the chart move sideways for a while and digest the March move before breaking out. This is because breakouts tend to be better when they have digested; otherwise, they exhaust themselves. Another week or so in this $45-$48 zone would be a good start. Right now, I think it would be better to miss the move up than to guess that it is ready to go.

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