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What to Watch Wednesday

If we are red, then here's why we might -- might -- be green on Thursday.

The Market

The S&P 500 has been red for three-straight days. So has Nasdaq and the Russell 2000. And the Dow Jones industrial average. Not one of them has gone four straight red days since February, so clearly if we are red again on Wednesday, it would be a change in the market.

On a short-term basis, I can make the case that we should bounce. I cannot make it strongly, though. Usually, for me to make a strong case for a bounce, the list would include several of the following items:

First, the Volatility Index is jumpy, but it barely budged on Tuesday. Second, volume for the Invesco QQQ (QQQ:Nasdaq) was off the charts; but it has been for three days, so it’s nothing new. Also, 90% of the volume should be on the downside. But we’ve had three- straight days of selling, and not one of them has seen 90% of the volume on the downside. Remember, high downside volume indicates some level of capitulation. Third, the TRIN, or Trading Index, has been funky for months on end, but it didn’t even get over 1.0 Tuesday. A reading over 2.0 would indicate some high level of capitulatory selling. We would typically see a high put/call ratio, as well, and that didn’t happen as the reading wasn’t even over 1.0.

So, what we have is that we’ve had three-straight days of selling. What we have is that the McClellan Summation Index, which has been in a downtrend for at least a month now, would require a net differential of positive 3,700 advancers minus decliners on the New York Stock Exchange to halt the decline. At positive 4,000, it has stepped into a more extreme oversold condition, so it’s close.

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I can also note that the number of stocks making new lows on Nasdaq did not increase. That is the first time we’ve seen that in a week.

If the market is red Wednesday, then I would think Thursday would see a green day, just because we’ll be getting more oversold by then. But from what I can tell so far, the sentiment has not shifted enough for me to think we are at the end of this yet.

New Ideas

Take a look at Microsoft (MSFT:Nasdaq), which broke the uptrend line Tuesday. There is some decent support in this $195-$200 area, so I think it can bounce from there. But a rally back to $210-$215 looks to be the best it can do for now.

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For those who keep asking about Kinross Gold (KGC) - Get Free Report I haven’t changed my mind on it. I think dips down into the $8 area are OK to buy. Under $7.50 and I’d change my mind.

As a reminder: I still think the dollar is going higher.

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Today’s Indicator

The McClellan Summation Index for Nasdaq, where I use volume, continues lower.

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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.

Lumentum Holdings (LITE:Nasdaq) disappointed me when it gapped down under that uptrend line. The good news is that there is support in this low $70 area. But now I must be a seller into rallies for the time being.

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I think Tesla (TSLA:Nasdaq) is a bit of a bubble that burst but I suppose it should bounce off that $275-ish area since that’s where it has support. It would also be close to a 50% decline.

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I would have bet that Gilead (GILD:Nasdaq), once it came down to $66 would hold there and start to dig in its heels but instead it seems to have made a fresh break today so unless it can recapture $66 before the end of the week I’d have to figure it wants to fill that early February gap at $62.

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It’s possible that STAAR Surgical (STAA:Nasdaq) is forming a small flag to make another run upward, but the resistance at $55 is the best I think it can do right now. I wouldn’t be surprised if it makes a try up there and fails.

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