Rumors China was not looking at their European holdings helped fuel traders fire to scoop up shares. Unfortunately, institutions did not share the same vigor as volume was lower by more than 21% across the board. While the price action was certainly positive the extreme drop off in volume certainly gave us pause. The rally attempt is still intact, as it is important for day 4 through 10 to get a follow-through day. Therefore, today wasn’t necessarily bad. But, when institutions stand aside while the market races higher is not a great sign.
Friday will mark day 4 of the S&P 500 rally attempt. All other indexes marked their first day of a rally attempt as the NASDAQ, NYSE, and Dow Jones Industrial average finished higher since last week. Over the next few days we’ll certainly be watching for a follow-through day and if we do get one we’ll have to respect it. Remember, no bull market has ever started without one, but we can get a follow-through day without starting a new bull market. Again, respect the follow-through day, but if there is a lack of power in leading stocks it’ll be a signal this market isn’t ready to resume an uptrend.
Today’s rally did help clear oversold conditions where the McClellan Oscillator rose above its extreme oversold and oversold conditions. As well as the Relative Strength Index on the indexes lifted above oversold conditions. This isn’t a signal to “buy” the market by any means and we need to see more accumulation, institutions buying up stock. It’ll be important over the next few days we see institutional buyers stepping up and buying up stock.
Tomorrow’s market will more than likely see a light volume day as many money managers will be taking off early for the long weekend. The chances are volume will be even lighter than it came in today as the Memorial Day weekend approaches. More traders will be worried about their weekend plans rather than if they are going to accumulate shares.
At this point, cash REMAINS king and taking any new longs are quite risky. If you aren’t able to cut your losses than it is a wise move to stay on the sidelines until we get a clear indication of a new strong uptrend is about to emerge. Remember, the Asian Currency Crisis and the Russian Bond Crisis all took about 3 months for the market to digest the “crisis.” And with the European Debt Crisis about a month old history indicates the selling pressure isn’t done. Remain patient and disciplined.
Enjoy the nice long weekend!
Disclosure: No Positions