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What? Me Panic?

A high level of panic appears not to have set in, though the generals and their troops got taken out on Monday.

The Market

For more than a month the market has been narrowing as we watched the majority of stocks head down or go nowhere while the index-moving stocks moved up. That means the troops – the majority of stocks – were getting picked off while the generals – the index-moving fan favorites – were not. That changed Monday when they took the generals out as well.

In a typical swing from overbought to oversold, it tends to be relatively calm until we get closer to an oversold condition and then the move tends to become violent. That’s why as we move toward a short-term oversold condition I tend to look for a jumpy Volatility Index. That’s why as we move toward a short-term oversold condition, I look for high volume. I look for 90% of the volume to be on the downside. I look for a high put/call ratio. These are all signs of panic. And people only tend to panic when their winners get hit. This is what typically happens near a short-term low.

What I like to see is that initial low, then a rally and another trip back down. The proverbial “W” pattern. That second leg down is what usually makes for a better pattern, or one where we have positive divergences, if there are any.

We did see the VIX get jumpy. We saw 93% of the volume on the downside on the New York Stock Exchange. We saw overall volume rise. Did we see panic? That still feels a bit debatable. And yet that is anecdotal, but when the put/call ratio is 110%, it still feels like it’s not that panicky – especially when the 10-day moving average is still so low.

I also prefer to see the TRIN (Trading Index) over 2.0 and both Nasdaq and the New York Stock Exchange saw theirs under 1.0. Over 2.0 is a sign of panicky selling.

What we did get was a rise in PowerShares QQQ Trust (QQQ:Nasdaq) volume. It was the highest in more than a year. Over the past year, it has marked a good low in the market. Prior to that, it marked a low that led to a bounce and back down. Look at the high volume sell offs in the fall of 2018 vs. the high volume declines in 2019. Right now, I suspect we’d be looking at a low, not the low.

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Why is that? First, because I don’t think there is real panic. Oh, sure CNBC is doing a “Markets in Turmoil” segment, which should be good for a bounce, but we’re not at a great oversold condition yet. The number of stocks making new lows rose significantly.

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I think it is more likely that after a bounce, we come back down again. The best news for his market is that we have finally seen some selling.

New Ideas

I have my eyes on the chart of crude oil, because it did not make a lower low. Oil stocks have collapsed, but if oil itself can begin to hold that would be a sign the selling is coming to an end.

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CrowdStrike (CRWD:Nasdaq) looked like it was going to break out and it failed miserably. There is support around $53-$55, which I do not think it will break.

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Nvidia (NVDA:Nasdaq) has support back at $250, but I am more concerned about that island it left overhead. If it cannot rally and close that gap at $290, it will be quite bearish.

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Pan American Silver (PAAS:Nasdaq) has met its upside target when it traded to $26 today.

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Today’s Indicator

The 30-day moving average of the advance/decline line is not yet 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.

Agenus (AGEN:Nasdaq) is not the kind of chart I would want to buy in this market, but it ought to bounce off of $3. Still, I suspect rallies in the $3.60-$3.80 area get sold.

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Quad Graphics (QUAD) - Get Free Report has filled the gap, so it ought to find some support and rally form this $5 area. Any serious trading under that and I’d consider it problematic.

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Affiliated Managers (AMG) - Get Free Report is building a base. Some more sideways work below the breakout level of $90 would have me very interested.

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