Futures looked mighty chipper to begin the day. Early morning trading saw sellers take control right off the bat, but the party would not last long for sellers. Shrugging off dismal numbers from New Home sales and a very disappointing reading from the Richmond Fed Manufacturing index, stocks moved higher. Volume run rates weren’t all that convincing until the end of the day, but kicked up when the 5.8 earthquake struck central Virginia. Market leaders, thin leadership moved higher and produced one breakout. However, the majority of leaders remain UNDER their 50 day moving average and proving very little. Confirming market rallies need new leadership and old leadership looking solid, today is just NOT the case. We have a new uptrend confirmed on day 11 of the attempted rally, but it appears very shaky at best.
Successful follow-through days normally have volume well above the 50 day volume moving average. Although volume was higher than Monday’s light day it was under the 50 day average, a sign Institutions weren’t excited about today’s move in stocks. In fact, the move appears to be more like a sharp rally you see in bear markets due to shorts being squeezed out of positions. Whatever the reason, big percentage gains like we see today occur during bear markets and not during solid uptrends. This market needs some serious help from its leading stocks if this uptrend has ANY chance to succeed.
Bank of America (NYSE:BAC) and Goldman Sachs (NYSE:GS) continue to price in something awful ahead. Whatever it may be these stocks continue to take a beating hitting new 52 week lows. Buying 52 week lows is always a losing proposition. Many do not realize buying strength is a more formidable trading strategy. Buying stocks on the cheap may seem appealing, but usually the stock is cheap for a reason. It is best to avoid these types of stocks and stick with strength over the long haul.
This little confirmed rally does have the chance to continue moving higher. Last week’s gap created last Thursday is a logical stop and one we should be paying attention to. Any distribution in the next few days will likely spell trouble for this rally. We do see this as an opportunity from our short wish list to setup for us in the near future. We aren’t in a new bull market, just a snap back rally in a newly formed bear market.