Another low volume session as traders await earnings reports. Institutions like many traders are simply staying on the sidelines as volume suggests. Stocks did experience a bit of volatility as the morning’s high was sold off, but the market did find a bid closing just above positive territory at the end of the day. Even Alcoa caught a bid as the stock saw it shares trade almost twice Friday’s volume. At the end of the day it was nice to see the market avoid any heavy volume selling, but we continue to see a lack of conviction to the upside. If this market wants to move higher we’ll need to see conviction from institutional players.
Last week’s follow-through day has caused a bit of confusion amongst traders as some view last Wednesday’s move wasn’t strong enough to constitute a confirmation day. Regardless, if we get another day of conviction it’ll confirm this rally has legs. However, the wedging action in the NYSE indexes does add questions to the validity of the confirmation day. The view of this market will get clearer when volume does arrive.
Many believe we need to have volume higher above the 50dma all the time. Volume is relative, but on a follow-through day it would be ideal to have volume near the 50dma and price near 50dma. After the initial follow-through day we really just need to see volume come in higher than the previous session. In addition, we have yet to see the market pull back in the morning then see volume flood the market and price move higher. Volume has been light and we haven’t seen typical uptrend behavior, but a big volume splurge to the upside would answer the questions about volume.
After today’s close the market did receive good news from Alcoa as they beat earnings as well as raised guidance above expectations. Many were hoping for a solid performance out of Alcoa and would look for other companies to do the same. C S X Corp also provided the market with a positive jolt. The stock has been performing well for the past 4 trading sessions as traders anticipated a good earnings report from the railroad. A positive start to this quarters earnings blitz, the market has to answer whether or not this will be the “norm.”
Breadth favored the downside today a negative divergence, a first for this recent uptrend. By all means this isn’t “the signal” for the death of this uptrend, but something to keep an eye out for as we continue to move along. We’ll need to see breadth return if we move higher. Breadth is important to the health of an uptrend. Today could have been an anomaly, but in the context of this rally it adds another question market needing an answer.
The positives of this market is the negative sentiment and the growing number of stocks we are seeing as potential big winners. If we get this market to co-operate we’ll have an excellent chance to ride a large wave higher. Are you prepared?
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