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Wild, but Within Range

We’ve been stuck in a trading range of around 5% – and I still think it feels an awful lot like 2010.

The Market

Have you noticed that we have spent the last few days in a similar trading range? Yes, it’s a wild 5% range, but we haven’t really fallen out of it since Monday’s whack. So, are we using up the oversold reading by going sideways?

Possibly. But let’s note a few positives from Wednesday’s trading. We undercut Monday’s low by more than a few pennies (like yesterday) and there were fewer stocks making new lows. The New York Stock Exchange saw 1,620 new lows on Monday and 1,130 today.

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Nasdaq too saw an undercut to a lower low and fewer new lows.

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Many will ask if I consider this a retest. No, I do not. Why? Because I believe that retests come weeks or months later. The first thing we need is an oversold rally, a proper oversold rally, not a one-day wonder.

I know I keep harping about 2010, but let’s go back to that chart again. I do not expect an exact analog here, but I think it gives us an idea of how that played out since it too came from a new high.

When we fall so quickly from a new high, it doesn’t give folks a chance to get out so every rally becomes a selling opportunity until all the selling is done. Look closely at this chart: The S&P peaked in late April and while you might consider the two-day rally after the Flash Crash, the first oversold rally, I would say late May was the next one. And that one lasted two to five days before heading down again.

Then look: In the second week of June we finally — finally — had a rally that lasted over a week, almost two weeks before we came down again.

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That June rally came six weeks after the high. We are currently three weeks into the decline. So, when I say I think we should rally and come back down, please keep this chart of 2010 in mind. It took six weeks before there was even a playable oversold rally. And then it took nearly three months before there was any sort of bottom in the market worth buying, for that lasted longer than a week or so.

So far, this week the only rally we’ve been able to muster is up and down in this 5% range, which is disappointing, since I thought we’d get more than that. So far, I have been wrong.

In the meantime, bonds have backed off more than just a bit. I think they ought to make their way down to that uptrend line on the iShares Barclays 20-plus Year Treasury Bond (TLT:Nasdaq), but can they do it in a straight line? I’m not so sure. The $162-$163 area is important on the TLT now, because a failure to rally back over that is a sure sign of failure.

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I’m watching this, because the Bank Index didn’t make a new low today either, which is rare these days (on a down day).

On the sentiment front, we saw the Investor’s Intelligence bulls fall to 36%, so they too are finally moving to too few bulls. The bears are still at 23%, so we don’t yet have more bears than bulls, as we did at the December 2018 lows, but the spread is narrowing.

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New Ideas

I was asked about Alphabet (GOOGL:Nasdaq), so I will cover it here. It has broken, but it is into some support. That’s the best I can say about it. If It can rally to $1,300-$1,350 I would use the opportunity to sell.

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Today’s Indicator

The Volume Indicator is at 43%. It hasn’t really moved all week. That’s the fact that we have spent three days in a trading range.

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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.

The only stock asked about was Google so I answered it above.

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