Price and Volume action confirms new uptrend
Sellers stood aside as stocks were able to climb higher with volume moving higher. Today was a follow-through day where volume was higher than the day before with a greater than 1.7% increase in price. NYSE volume skipped higher at the close as volume ran lower for much of the day, but the NASDAQ had volume running higher throughout the day. The knock was volume was well below the 50dma volume average. However, there were a few leaders looking good and general conditions appear to have improved. A solid day for the market, but it needs more work before a powerful new uptrend is upon us.
Past follow-through days, successful ones usually have volume right at the 50dma or will have a second follow-through day coming in right behind it. Today was day 6 of an attempted rally, well within the 4-10 day range where we normally will see a follow-through day. However, with the lack of volume shows the institutions weren’t behind the move in its entirety. Price action was what you would expect from a follow-through day it just comes on day where volume was lacking.
The volume question can be answered if we do get another follow-through type day like we saw back in July of 2009. Aside from another follow-through day the market must escape an early distribution day. Our previous confirmed rally saw a huge distribution day on the second day following the confirmation. If the market can either move higher on increased trade or pull back in light volume it’ll be a sign this confirmed rally could be for real. In addition, we need to see leaders shaping up and showing up to the party.
It’ll be interesting to see how the market reacts here. The number of stocks over their 20dma is 77% a number normally seen where the market can pull back. If we do pull back it’ll be important to see volume come in lower. On the flip side the NASDAQ is staring down the 50dma and it wouldn’t surprise us to see the NASDAQ go after the moving average. We have seen the market act volatile and has yet to find a good rhythm. We need smooth tight charts including the indexes and we continue to see the opposite. Until we see real power out of this market cash will continue to be king.
The volatility certainly can think you can take advantage by getting in and out of the market. However, in the long term this will only either force you to churn your account or miss big moves in either direction. Livermore found by holding for bigger runs was the key to building real wealth and ultimately becoming hugely successful in the market. Darvas and Wyckoff had a similar strategy to hold for big trends. But, remember, there was a time and place where the market conditions allowed for this. Other times the conditions were simply not there. While it is tempting to think we are going to have a huge move without the big volume confirmation it is difficult to be confident and put your hard earned money on the line. Wait for the market to confirm your opinions.
Disclosure: No Positions