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Tread Lightly to Avoid Market Traps

A short-term rally becomes more likely, but a pullback isn't far behind.

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If you thought Wednesday's action was bullish because of the light volume on the downside, then you had to think yesterday was bearish because of the even lighter volume on the upside.

But looking at the advance/decline line, combined breadth over the last two days has been positive, as yesterday's positive reading more than offset Wednesday's downside result.

Does that mean you should be bullish? If you look at up volume vs. down volume, probably not.

The market's mixed signals aside, what interested me most about yesterday's action was the put/call ratio. The market went absolutely nowhere, as has essentially been the case for weeks, and yet the put/call ratio soared to 93. That's the highest reading since March 25, and it certainly isn't bearish.

The put/call ratio, although only a one-day reading, supports some sort of short-term rally in here. Additionally, the 30-day advance/decline line for

Nasdaq

is going to drop a string of negative numbers for roughly the next two weeks, which would also suggest a short-term rally is a real possibility.

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For the past week I've written that we're getting late in the rally, because many of my intermediate-term indicators are reaching maximum overbought levels. But we must first have a rally in order to truly be "late in the rally." The market needs to change its pattern of nothingness. My wish remains for a move above 900 on the S&P, one that gives everyone hope, and becomes a false breakout.

As an aside, I wanted to convey a few things about SARS and the issues surrounding it. First, thanks to all those readers who have written to express your concern for me here in Shanghai. For the time being, my husband and I have decided to stay. We might change our minds later, but for now we're staying put.

SARS has slowed business here in Asia considerably. Hong Kong is virtually shut down, and some have said the Hong Kong health care system is near collapse. Malaysia and Singapore are among the places taking steps to keep out or quarantine people arriving from Hong Kong or China. Few people are even flying within China anymore.

Right now my belief is that the panic is worse than the disease, which is one reason we've decided to stay here. But SARS isn't just an Asian issue, so be smart and be vigilant. We are.

Overbought/Oversold Oscillators

For more explanation of these indicators, check out The Chartist's

primer.

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Helene Meisler, based in Shanghai, writes a technical analysis column on the U.S. equity markets and updates her charts daily. Meisler trained at several Wall Street firms, including Goldman Sachs and SG Cowen, and has worked with the equity trading department at Cargill. At time of publication, she held no positions in any securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. She appreciates your feedback and invites you to send it to

Helene Meisler.