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Top Stocks With Helene Meisler

 Top Stocks

We've Got a 2-Way Market

BY Helene Meisler | 01/29/15 - 07:53 PM EST
Stocks in Focus: SOHU, MSFT, VLO

The Market

Is your head spinning around yet from all the ups and downs and going-nowhere trend we've seen? In my view, the biggest change we have seen so far in 2015 versus previous years is that we actually have a two-way market.

By that, I mean even though it seemed as if all we did was go up in 2013 and 2014, in reality we had several market swings. During those swings we rarely had benign breadth readings; mostly we had what I termed the "all or none" market. We were very one-directional -- up and down -- now we have a market that doesn't have massive breadth readings on up or down days every single day. Sure, the indexes are wildly swinging, but the whole market is not swinging with them.

I have given the example in the last few days of Tuesday's 27-point decline in the S&P 500 that was coupled with benign breadth that was only negative by 400 issues. Even Wednesday's similar decline of 27 points only had a net negative reading of 1,500 issues. But much more than the breadth is the relationship of these large-cap indexes and stocks to small-caps. This is a theme I have harped on now for at least a month.

This doesn't mean I think large-cap stocks are awful and can only be played from the short side. It means there are plenty of stocks that don't go up on up days and plenty that don't go down on down days. To show you how different it is, notice that all the big-cap major indexes are below their 50-day moving average lines, in some cases far below. Yet the Russell 2000 is above its. That was not the case in all of 2014.

And then there is the fact that the S&P revisited the midmonth lows (but not December's as I so hoped for) and the Russell did not come down that far. I have shown the chart of the Dow relative to the Russell countless times lately, so I want to do that one more time to show you that despite the last two days where the Russell lagged the big-caps, it looks more like a blip on the chart. I believe as long as that ratio stays under the flat line I have drawn in, this trend should continue.

The best news I have from today's statistics is that the put/call ratio remained quite high all day. Below you will see the chart of the 30-day moving average of the equity put/call ratio. It has turned down. If it stays heading down it would be bullish, but quite frankly when I looked ahead to the numbers it was dropping in the next week or so, I am not convinced the decline in the moving average line can continue unless the market really ramps up from here because of the low ratio readings we're dropping going forward.

For now, I'd say we did not get the setup I so desired, so we'll consider this all part of an oversold rally for now.

New Ideas

I was asked to follow up on WisdomTree India Earnings ETF (EPI), to be long the Indian market. We showed the chart here bullishly a few weeks ago. It has since broken out and has consolidated its gains. The chart measures to 26.50. While it can easily pull back and retest the breakout at 23.50, I would prefer it if held on here since that would indicate strength.

Today's Indicator

The 30-day moving average of the equity put/call ratio is discussed above.

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.

Sohu.com (SOHU) looks to me to be early in forming a long-term base. As you can see, there is plenty of resistance between $55 and around $60 from last summer, but it is trying to eat its way through that. I would prefer to buy this on dips toward $54-$55, and my expectation is that over the next several months it will back and fill between $50 and $60 to carve out the right side of the chart, completing the base. If that should happen, then when it eventually breaks out -- if it does -- it would measure into the low $80s. This is obviously not on the "short term" trading plan! While a trade under $50 does not spoil the chart, it would make me uncomfortable and I would prefer it does not do that.

Back in December, we looked at Microsoft (MSFT) when we discussed the concept of lower highs, and I used it as an example of how a top forms with lower highs and lower lows. It broke down badly this week, but the measured target was about $41 and it is rebounding from there today. The big hurdle will be for it to get over $42 and stay there. I would think the rally would peter out in that $43 area. If I thought the market had had a good low here, I would have looked for a move up to fill the gap to that $46 area, but right now it looks more like an oversold rally on Day 3, from the measured target.

Valero (VLO) is about the only energy stock in my pile that has had a massive run upward. This is how bases form. The stock has a lot of resistance in this $53-$54 area, but pullbacks into the $49-$50 area now look as though they should hold and continue fleshing out a proper base. Eventually this ought to break out over that line that is currently near $53, which would signal the completion of the base.

Regards, Helene Meisler

Within Reach Again of December Lows
Stocks in Focus: XLU, FXY, TWX, TSLA, AMGN, GOOGL

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01/28/15 - 07:08 PM EST
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