Watching for a Dow Theory Confirmation

The Market

At least we got our red day today, which was the right timing according to my research. Day-counting is not necessarily something I pay attention to. But note that in the two previous examples showed here, in which the S&P 500 had a long string of positive sessions, we had one red day and then another push upward.

What I found so interesting was that the put/call ratio, after sinking like a stone for two days, surged up on Wednesday like a beach ball under water. Were folks really looking for a big pullback? Perhaps it was all that double-top talk that got them riled up.

In any event, the put/call ratio zoomed over 100% while the put/call ratio for ETFs soared to just over 200%. The last time we saw this sort of frenzied put buying was on April 11. I suppose the offset is the high International Securities Exchange equity call/put ratio at just over 200%. That makes two out of three days that it has been high.

My base case has been for the market to have a pullback on Wednesday and/or Thursday and then rally again. I will stick with that view. The fact that the put/call ratios are all over the map tells me that folks are getting quite emotional about the market right now.

However, I think the Apple (AAPL) news and movement after hours will be the topics of the day tomorrow. I have no special insight into the news. You might recall that I recently liked the chart of AAPL at $540 -- right before it fell to $515. So I have not exactly had a great call on this stock in the past month. That said, we can see the resistance at $560-ish on the chart.

Should AAPL manage to get up there and stay up there, I would be impressed, and could calculate a longer-term target in the $620 area. My concern then would be that Netflix (NFLX:Nasdaq) had a massive gap up after its earnings and has now given back nearly 30 points of that rally. Gilead Sciences (GILD:Nasdaq) had a terrific gap up, and while it endured admirably today, in the end it too could not maintain the after-hours upside.

What I think will happen -- and what I would like to see -- is another push up in which the Dow finally confirms the transportation stocks to give the market a Dow Theory confirmation. Then we would see a CNBC celebration for sure, probably giddiness galore, and likely negative divergences as we head into May. Let us see if that plays out.

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New Ideas

Freeport McMoran (FCX) has been a disappointment for years. However, if the stock can rise above this $33.75-$34 area, the breakout from a head-and-shoulders pattern would be impressive. The chart would actually measure to the $37-$38 area. I have not seen folks excited about FCX in a very long time.

The other side of the ledger finds Children's Place (PLCE:Nasdaq) on the verge of breaking down. The target is not that far away at $45-$46, but it sure won't look pretty if it breaks. The stop is a very tight $48.20.

Today's Indicator

The volume indicator is in the middle of nowhere as it bounced off 49 and is now at 51. The mid- to upper 50s area is overbought and the lower 40s is oversold.

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.

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The initial target on Italy iShares (EWI) , the ETF to be long Italy, has been $18. As you can see, it has stopped there twice. This could turn into an extended consolidation that goes sideways. For now, I will pay attention to $18. The chart is not bearish; it has simply hit the target.

When I look at the chart of McDermott International (MDR) , I wonder if it is showing the beginnings of a base. For a real, long-lasting base to result, the stock would first need to rally to $7.75-$8 and then to pull back and rally again. That typically takes months. If you wanted to speculate that this is the low and the stock will begin that process, you can start nibbling here. For now, however, the lid looks pretty solid at $8.

Should the stock trade over the next few months as I have indicated in the chart below, it would vastly improve the look of the potential base.

You had a decent trade in Visa (V) from the short side about a month ago. While the stock did not fulfill the downside target of $190, the decline of nearly 15% was a good one. I agree with those who say that the stock should have some trouble in the $210-$215 area. A retest of $200 would give the chart a W pattern. I am neutral on the chart now, since there is a good amount of support in that $195-$200 zone.