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Well! That (Doesn't) Settle It

Let's see what the day's action did -- and didn't -- tell us. Also, check out the moves in the Russell 2000 and biotech ETFs.

The Market

I was hoping today would settle some issues in the market. Like a down day with fewer new lows would have said: positive divergences. Or a down day with 90% of the volume on the downside would have said: panic. We saw very little of that. New lows once again gained, with Nasdaq now at 340 new lows, closing in on the 360-plus we saw in the February and March decline when Nasdaq itself was much lower. The New York Stock Exchange, though, is now beginning to play catch-up with 100 new lows. Triple-digit lows with a market less than 1% off the highs is not a great statistic.

Check out the 10-day moving average of Nasdaq new lows, because it is now higher than it was in the spring decline.

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The put/call ratio was .93, so at least there was a bit more hedging going on. Tomorrow we’ll see if the Investors Intelligence bulls have backed off.

Away from that, it seems the consensus call is now for the S&P to come down and tag its 50-day-moving average, which is about 100 points lower than here. That I find interesting, because Nasdaq, by dint of having gone sideways since early July, finds its moving average line right here, as in we bounced off it today. I have never been a fan of thinking the various moving average lines must be support, mostly because I think if you break them, you tend to get panic, because everyone is watching them. Witness Nasdaq as it broke in March for two days before a rebound. In May it broke for three days before a rebound. So bring it on!

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No one seemed to even comment that the Russell 2000 fund (IWM) - Get Free Report toyed with its 200-day moving average today, either. It did bounce off it but I find it curious that there was nary a mention. Break it, and we’d get some panic I think.

If we don’t break these levels and get panic, then I think we’re in the same boat we’ve been in, the runway to the upside is short, because while the daily sentiment index for the Volatility Index (which was 8 last Thursday and therefore has worked perfectly) is now 20, but the DSI for Nasdaq came down from 91 to 85. So, sure, it backed off, but 85 doesn’t give us a big runway to fly upward, does it?

New Ideas

As I noted last week, the new low list is littered with biotech stocks. There is real pain there. That is why I am focused on the SPDR S&P Biotech (XBI) - Get Free Report. We had a good run with the biotech fund IBB (IBB) - Get Free Report, but XBI has been terrible. Today, it bounced nicely off $120, the prior low area, and it closed higher. No one seemed to care, which I like.

If you look back, XBI peaked in late June and has been a one way path lower ever since. If XBI can begin to hold and rally, that would be a change in the market. The first real hurdle is over $125, since that’s where it broke from this week. The much bigger one is over $130. So the risk/reward is that a break of $120 and I know I am dead wrong to try and bottom fish here.

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Today’s Indicator

The McClellan Summation Index is heading down again. It would require a net differential of positive 1,900 to turn it back up. At positive 2,000 it is oversold, at positive 4,000 it is extremely oversold.

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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.

I really thought Digital Turbine (APPS:Nasaq) would bounce from support at $55, but I was wrong. Now it’s a sale at $55-$60, because that’s a big breakdown from a top.

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The iShares MSCI Emerging Markets ETF (EEM :NYSE), for the emerging markets, broke down, retested the breakdown and is now revisiting the lows. Typically, we should see a bounce off that spike low near $50. If we do get such a bounce and around $51 is all it can do then the next trip down we would likely see it break. There is a measured target $46-$48.

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Viacom CBS (VIAC:Nasdaq) continues to hang by a thread. I have thought for two months that it should rally and here again I have been wrong. Breaking $38 with any oomph would mean a new leg down.

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