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Chinese Save the Day; Stocks Close Higher as Volume Lags

|Includes: DIA, EDC, EDZ, GLD, PowerShares QQQ Trust ETF (QQQ), SIL, SPY, TECL, TECS, TNA, TVIX, TZA

Coming into the week more concerns over a Greek default piled onto an already unstable market. Fear has gripped this market and it doesn’t surprise us. Monday’s trading session was filled with wild swings that would make most violently ill. Day traders delight perhaps, but it is not how to invest. The market was at its lows by 2:00pm looking like Armageddon was closing in on the market. The bear flag so many have seen was now valid! Not so, the Chinese stepped up and agreed to purchase Italian bonds a move cheered by the market. Unfortunately, the move came on light volume showing a move dominated by High Frequency Traders (HFT) than institutions. Institutional buying is quite obvious, volume would be above average and higher on the day. Instead, today we get a low volume rally setting the market up for a possible run to the 50 day moving average.

This up-trend remains intact for now, but the lack of accumulation is quite disappointing. Many chart patterns remain wide and loose a big time red flag. Given the context of the market it is par for the course. This is not an excuse for any pattern that is wide and loose, but knowing the context of the pattern is very important. We have a volatile market and with the VIX near 40 it is no wonder we have the wild swings in individual names and the overall market. Stay away from wide and loose patterns as they have a high probability of failure.

Last week we saw the beginnings of sentiment hitting extremes. The AAII survey stated the number of bears were 40% while the bulls only at 30. While not extreme from the AAII stand point the II numbers began to creep towards levels where a bounce is logically occurred. Couple ugly sentiment with oversold conditions it is a likely scenario a push back up into the moving averages is quite likely. Cash remains king and despite a small rally possibility it does not mean a sustainable rally of more than a few weeks is upon us. How to invest in this market takes a great deal of luck and you are more likely to churn yourself up.

Cash is king and will remain king. We are going to take advantage of some longs here, but we are very mindful of our risk profile here.