Monday did not disappoint bulls, even with the market opening lower the market found footing early on and moved higher. Dell Computers bid for 3Par helped fuel small caps as the 1.15Bn bid move the stock more than 80%. By mid-day the market moved to its high, but volume was not catching up with price. It has been the market’s behavior with these rebounds, strong price action with weak volume support. Early afternoon trading brought on sellers taking stocks off their highs. Late day support kept the market from falling below its mid-point, but the inability to keep near its highs and volume coming in lower suggests upside will be limited.
This market just simply can not gain any support and it is not like summer time has not seen its fair share of new rallies. August of 2004 and 2007 both produced rallies where the market coughed up some big winners. Giving the market the excuse low volume is o.k. is simply ignoring market signals. It would be much more encouraging to see volume flood in when the market hits new lows and powers higher. It is a sign big institutions are behind the move and willing to step up and accumulate shares. At this point in time, the big boys aren’t coming in and supporting this market. In order for this market to push higher we need to see the big institutions supporting stocks.
Today’s rebound did not come as a surprise. Last week’s selling pushed the market into oversold territory. Unfortunately, without Dell’s purchase of 3par small caps would have sung a different tune and without Cicsco or Intel the NASDAQ would have been worse. Even after last week’s selling Netflix, 3Par, Cisco, and Intel is all the market could cough up to gain support for this market. We’ll need to see better support coming out of this market otherwise we’ll just work down to new lows.
In 1998 we saw a similar market where we had plenty of leaders like AOL and Qualcomm holding up when the NASDAQ dropped more than 30%. These leaders went on to blast higher and produce monster gains. Will we similar gains from current market leaders? Perhaps, but it appears this market wants to continue to work itself out before we see big, big gains out of our leaders. The key is having the patience to wait out the market and let it come to us rather than us “guess” when the market will turn. We’ll see the market come under accumulation and it will come immediately.
Be aware of the market and how it responds. Stay patient.
Disclosure: Long PWER