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Top Stocks With Helene Meisler

 Top Stocks

Stocks Struggle to Hold the Line

BY Helene Meisler | 07/10/14 - 07:02 PM EDT
Action: P, GLD, C, POT

The Market

There was a lot of confusion today among folks. Some thought the morning collapse was the perfect buying opportunity, while others were aghast that folks would opt to buy this dip. Before we get to the statistics and indicators for the day (which showed the confusion), I want to revisit the disc ussion from last evening.

Last night we looked at the chart of Facebook (FB:NYSE). We discussed that the chart broke the uptrend line and is desperately trying to recapture it. This is a two-step process. The first step is, can it hold Tuesday’s low near $62? So far for today, that’s a yes. The second step is, can it get back over the line? For today -- and yesterday -- that's a no.

Is it possible that the selling will dry up but there are no incremental new buyers? Absolutely. That’s why I noted it was possible that Facebook just managed to now go into a trading range between $62 and $66 (use "ishes" with that). To recapture that line at $66 and stay over it would be bullish. But to trade under it would not be.

That's what we saw a lot of today: stocks that refused to break Tuesday’s low (bullish) but refused to get back over the resistance (bearish). Let's call it part of the correction. After all, Facebook is down 10% already. Do you expect it will just collapse from here? That is not realistic. It did not surge in a straight line. Look at that chart. Did it surge? No. It spent six weeks trading between $56 and $64. While we all want instant gratification, we don't always get it.

Keep in mind that the iShares Nasdaq Biotechnology (IBB:Nasdaq) did the same thing: It refused to break down to a lower low but could not get back up over the line. If you fall down a flight of stairs, you might not be so willing -- or able -- to get back on that staircase and run to the top. You might instead stumble around, groping at the banister, falling back a few steps, climbing a few steps, and so on. Stocks generally are no different.

As for today’s indicators, they were a mixed bag. For example, the Russell 2000 came down and bounced off its 50- day moving average, which was also the 50% retracement level of its recent rally. The Dow Transports saw no selling. Mostly the Dow Jones Industrial Average and big-cap stocks saw very little selling as well.

The ISE Equity call/put ratio zipped up over 200%, which is bearish. But the CBOE’s equity put/call ratio was the highest it has been since the May lows, and the put/call ratio for exchange-traded funds (ETFs) was over 200% for the third time in four days. Those are bullish for the short term.

Yet the 10-day moving average of the put/call ratio is now at a higher high and the highest it has been since the fall of 2012. The 30-day moving average of the equity put/call ratio has finally hooked up, although it is not terribly easy to see with the naked eye. The charts are shown below.

The number of stocks making new lows, while not a high reading on its own at 32, is the highest reading we have seen since the May lows. It stands out on the chart, as you can see. Typically a high reading needs to be retested at some point.

In sum, I think we are still in the midst of a correction. Perhaps it will play out with more selling, or it will play out as described using the Facebook chart above, by going sideways. I believe it is simply too soon to get a decent rally that is going to be long-lasting right now.

Read Helene's latest column here.

New Ideas

I was asked about the reversal in Pandora (P:NYSE) today, since it did close over the line and in the green. It does look oversold. The one thing that should concern you, though, is if it works off the oversold reading by churning at $26. So if it can lift itself up, then I do believe it can enjoy a rally back into the $28-ish area, but my stop would be $25, and if it moves up quickly, that stop would be moved up accordingly as well.

Today’s Indicator

The put/call ratio is discussed above. Here are the two charts.


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 Top Stocks is not intended to provide personalized investment advice.

Email Helene here.

I was asked to do an update on the SPDR Gold Shares (GLD:NYSE), which you might recall I think is a bottom. It has completed the head-and-shoulders bottom . I am not particularly fond of the way it traded today, moving toward the low of the day. However, if GLD can now just mill around in this $128-ish area, I believe it can regroup and rally again. On a longer-term basis, I would not want to see this push back under $126 and stay there.

I have been willing to give Citigroup (C:NYSE) a chance for what seems like forever, and it keeps disappointing me. Today it broke down out of the triangle it has been in for months, and it's trying to claw its way back. This chart, while it looks different, is similar to the Facebook and iShares Nasdaq Biotechnology charts we looked at last evening: They get a chance to get back over the line, but not for long, and a failure to recapture the line after a few days would be bearish.

The last time we checked in on Potash (POT:NYSE) about a month ago, I was looking for a bounce off of $35, but I thought it would come back down after that bounce. The problem is that I did not think the bounce would take it to a higher high, so I was wrong in that assessment. My sense is that Potash will bounce off the line again ($35-ish), but it is still not ready to launch a decent push upward in my view. I like to see "W" patterns or panic at the lows. Thus far, this shows neither.

Regards, Helene Meisler

History Doesn't Quite Repeat

We're unlikely to see a replay of the spring's momentum-stock breakdown.

07/09/14 - 06:56 PM EDT
Let's Talk About Volume

And cue the momentum stocks.

07/08/14 - 06:50 PM EDT

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