Just when we think the market could be heading much lower stocks rebound, but in light trade. The NASDAQ retook its 50dma a positive sign, but the downside is we didn’t get the volume showing institutions weren’t throwing their weight behind the move. Even the small cap stocks out performed with the Russell 2000 leading the way. The market remains in limbo after clearing oversold conditions from the past few weeks and now we’ll certainly find out where the market is headed.
There are always positives and negatives in the market. We did see some very positive moves out of leading stocks with volume. We are on day 3 of an attempted rally off the lows and we have yet to see a distribution day. Normally, if a distribution day occurs within the first few days of an attempted rally the rally has a better than 50/50 chance of failing. The bulls have something going, but we could very well see this market turn on a dime and head lower. So it is best to use caution and wait for the market to confirm the new uptrend.
The recent rally has cleared just above every oversold oscillator and indicators you can possibly imagine. Since we’ve worked off the oversold conditions it will be important to see how the market reacts going forward. It wouldn’t surprise us to see the market drift lower after its monster rise off the lows. Although, distribution would certainly dampen the mood for this rally to gain much traction.
Cash is king at this point until we get some sort of price and volume confirmation of this rally. If we fail, it will only allow shorts to work and if a confirmed rally is in the cards we’ll get long stocks. It is quite a simple formula, but many folks try to pick bottoms and guess where the market is going next. Often times many focus on making “calls” rather than actually allow the market to guide them. The stock market can’t be beaten it can only be played. Much like golf, the stock market can be played and the sooner you stop trying to beat the game the better you will become.
Keep a positive attitude and do not let the market or your trading to get you down. If you are consistently losing money, trade smaller in size and sign up! In the meantime, patience is of the utmost importance and remain an even keel.
Disclosure: No Positions