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Volume Lags as Stocks End Off The Lows

|Includes: AAPL, BIDU, C, CMG, CRYFQ, DDC, DGP, DIA, EBAY, EGO, EWY, GLD, GMCR, GOOG, GS, IAG, IBM, ISRG, MMM, MSFT, NEM, PCLN, PCP, PG, POT, QQQ, SHLD, SLV, SPDR S&P 500 Trust ETF (SPY), TBT, UGL, VXX, YHOO

Volume lagged on both exchanges, but the NASDAQ only finished just below Monday’s level.  On the NYSE volume lagged by almost 20% as institutions failed to step up support stock prices.  The morning’s gap down was a function of Monday’s dramatic rise and traders racing to take profits after the one day move.  However, from the get-go stocks did find support, but the support lacked conviction.  By early afternoon the NASDAQ was able to pierce its 50dma, but sellers were able to take control and kept the index from closing above that key moving average.  The market remains in a downtrend for the time being and without any upside conviction caution must be exercised.

 

There remains a healthy fear in the market as many folks believe we are going to end up like the 2008 bear market.  Perhaps we may turn into a roaring bear, but no one has any clue whether or not that will happen.  At this point, we are simply pulling back from the uptrend that began in February.  The ultra-bearish sentiment is a positive for the market going forward.  It is just fine we pullback and let the strong charts hold up and by the time we establish a new uptrend we can get long the strongest stocks.

We will more than likely bounce around and perhaps test Friday’s or even Thursday’s low.  There maybe an opportunity to short a few stocks breaking lower as a few are presenting themselves now.  Getting aggressively short while we are still in oversold conditions is not a wise move.  It would have been more ideal if we took our time getting back up to the 50dma to allow more short setups.  However, we are simply playing the cards we have been dealt and are continuously looking for opportunities to present themselves.

For the bulls amongst us, for the record I am neither, it was Day 2 of an attempted rally.  It would have been great to see the market lift off the lows of the day with better than average volume.  But, it isn’t a total loss as we very well could continue higher and get a follow-through day on day 4 through 7.  I will state that our current correction is in its 3rd week and we typically need more time to correct.  Given January’s correction lasting a few weeks, we simply could see this market turn right around.

Even if you think we’ll turn here it is best you wait for the charts to give you the signal rather than guess what you’ll do next.  Often times traders try to get ahead of the trade without price confirmation and leads them astray.  Let the market come to you rather than you chasing it down.

Stay disciplined!