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What I Really Want to Talk About Is Oil

With McClellan Summation Index and utilities thrown in for flavor.

The Market

So we chopped about at resistance on the S&P and into the overbought reading. None of this is a surprise to us.

The nicest thing I can say about today's market is that the McClellan Summation Index has turned up, and even though it is quite low (thus suspect), the direction is up for now. It will take a net differential of advancers minus decliners of -1100 to halt the rise, so it's not as though it has a terrific cushion when you consider the S&P has rallied for a week and is near its high. One sharp down day and the cushion will be gone. The chart is shown below.

But you know I'm just dying to talk about oil. I can't help myself. Tomorrow could easily give back today's rally since the oil inventory numbers will be out in the morning, but since I have been harping on the oil stocks for over a week, I figured we should discuss it. The way this market works, if oil rallies tomorrow I figure folks will all of a sudden notice how "well" the oils are acting, after hating or ignoring them for so long.

First, let me note that it's not as though there are a bunch of great-looking oil charts. The two I have highlighted consistently have been Apache (APA) and EOG (EOG). Last night I noted Bonanza Creek (BCEI), but otherwise the pickings are slim. I am hopeful that as time goes on the charts will shape up, but for now this is what we have.

Everyone will note the resistance on the chart of U.S. Oil Fund (USO), an ETF to be long oil itself. A move up and over that sets up a move to the $21.50 area and maybe higher. That spike high at $21.50 is going to be difficult to manage the first time up.

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I also need to highlight the utilities. We have discussed the fan lines before, but I will refresh it again. The first line is a minor warning when it breaks. The second is like a batter in baseball, now he's got two strikes against him. If the third one breaks, it's a long-term change in trend. That's why a break of that $41.50 to $42 area is important. And ultimately an intermediate-term negative for the stock market as a whole. The utes are leaders, even if there is no timing to their leadership.

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I will finish by following up with the chart of the 10- day moving average of the put/call ratio. It has ticked up. Typically, once it ticks up, we consider the market is into overbought territory. It is my view that we should pull back or consolidate and then rally one more time into the end of the quarter. Let's see if that plays out.

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New Ideas

We looked at Ralph Lauren (RL) in late May and I drew in a line that had me expecting a pop. We got that pop, but what I got wrong was that the pop did not give it all back but rather pulled back gently and then popped again. I do not think this is a trade that must go immediately, but as long as RL can mill about in this $137 to $140 area to digest the recent move, I am going to continue to think this is bottoming and building a base. The measured target would be around $155. Some might look at the spike high around $153 for a target while others might look at the gap fill to $165. You can pick your target; mine would be about $155.

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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.

I don't think I have ever heard of MasTec (MTZ), but is surely looks like it's trying to bottom. I'd love to see a small consolidation right here, between $20 and $22, because that would make it easier for it to clear $22 when/if it gets through there. The longer-term target would then be near $28. So you can either anticipate the breakout and accumulate under $22 or wait for the breakout, but it looks like a decent chart to me. The only issue is that I don't know where I would put the stop.

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I was asked to follow up on Wynn Resorts (WYNN), where I thought it would break out and run to $110 from $105, and instead it died. Yet this reversal today has my interest even more. It's the third day down and if there is any follow-through on the upside, it will look like a good retest. Obviously now the key is closing over $102 and then over that downtrend line. Any close under today's low and I am dead wrong.

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I like to bottom-fish, as you probably know, but I don't really like the chart of Keurig Green Mountain (GMCR) on a longer-term basis. I do, however, think the risk/reward for a trade isn't bad. The stop is close by, under $82, and if it gets over $85 it can enjoy a short- covering rally to at least $87 and maybe even $90. But keep the stop tight.

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Scripps (SSP) looks to me like a chart that doesn't want to do much. If it breaks $24 I suspect it stops at $22.50 to $23. If it can get over $25, it gets a bit more interesting in that it would then look to fill the gap at $27. Therefore, at $24 it's stuck in the middle. I suppose if you wanted to speculate you could buy it here and stop out under $24.

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