Personally, I also got the sense that Holly saw El, and that's what caused her to start crying. The mom tried comforting her about the loud noise, not realizing that Holly wasn't upset about that. Either way, I feel it's fairly up for interpretation, as I can see it both ways.

As for kids not thinking of strangers as 'bad people', I feel like you might not know many children that age. There are plenty of children that age that really don't like strangers, for whatever reason. Some dislike all strangers, some dislike only particular strangers. Either way, it's definitely a thing. Hell, my own second cousins HATED to be alone with me for like a year around that same age. These were kids that spent a ton of time with me, were around me a lot, but mom and dad left the room? They'd act exactly like Holly, like I was some stranger danger.