Good buy-volume

Good buy-volume on the heels of Fed comments adds more evidence to our bullish bias.

Anyone watching CNBC this morning before the open was given the message that the market was falling a part as a lower open did it’s usual job of striking panic.

But anyone who has been around the market awhile knows better than to buy into the hype.

How many times have we seen morning reversals?

Successful traders have said before that what keeps things working for them is when they keep it boring.

We’re holding our Buyer’s Caution bias until we either see accumulation, which would make us bullish, or distribution, which would make us bearish.

We still lack upside Leadership, which means until we get it any rally will be suspect.

The precursors

The markets have been eerily quiet for the past few week.

Light volume and tight price action will be the precursors to a boost in volatility.

What or When triggers the next round of buying or selling is beyond us.

We have correctly obeyed the market’s mixed signals for the past few weeks, and are ready to strike (long or short) when conditions present an edge.

Leadership remains an x-factor

So far not much to say on price action.

Since taking a modestly bullish stance on the broader market there has been little progress one way or another.

Leadership remains an x-factor. Without solid acceleration from key sectors, the Bull’s power remains questionable.

But on a bright note, volume patterns show three accumulation days in the past three weeks. Not much to hang your hat on, but you gotta wonder how nervous the shorts are right now.

Guaging rallies off lows is tricky business. We could easily get a retest of the recent low, which would also not necessarily mean its over for the Bear.

We just need to take it day by day and lay low until we find the base setups we trade for.

Another accumulation day

Bulls pick themselves up as strong volume comes into support their cause.

With another accumulation day in the books for the major indexes, our volume indicator now leans modestly in the Bull’s favor.

This is a tricky time to guage the markets. We can’t expect clarity of trend to become evidient as the market flops off a recent panic-driven low.

Bear market rallies can be extreme.

But what we really need to see to believe we’re capable of something more than just a short squeeze is solid Leadership from a secot whose fundamental outlook is strong.

Because we have no leadership candidates we need to take it slow.

We continue to have our Yellow Flag out because price and volume tell us the selling has been overdone.

Nice Sneakers

William O’Neil followers know what it means when a company makes the cover of a major business magazine like Forbes. Just when it looks like the company is at the top of its game its stock begins to sputter after there’s no left to buy it anymore. This is the case with Nike Inc. (NKE). Nevermind what the article says. The stock has bounced off recent lows to just under its 50-day moving average. Looking at the weekly chart below we see it still has the resistance of its 40-week exponential moving average to deal with before shifting to a potential downward trend.

Hardly much worth buying…

A steep sell-off across the major indexes has the Bears revved up for more.

But it will take a couple of more -3% days to get us down to a new low on the S&P 500.

While volume edged up to mark a distribution day, the total count for the last two weeks is even, with the S&P 500 making three accumulation days and three distribution days.

Reaction to earnings season is what we’re most concerned with right now. But so far there’s been nothing to cheer about.

Though we’ve had our Yellow Flag out as a sign of caution for buyers, we’ve been safe with the fact that there’s hardly much worth buying.

The Zig And Zag Of It

Monday’s light volume decline means little.

We want to be careful not to get too wrapped up in day-to-day action, and must always be aware of the bigger picture.

We’ve taken a modestly bullish stance on the market due primarly to our price and volume analysis.

But often when the market has burned bulls and bears price-action will zig-zag mostly sideays for a time as players fight to get on the right side of the action.

Bulls want to see down days on lighter volume, and up days on heavier volume. And Bears want to see the opposite.

What FTD?

What the market is saying:

Buyers show interest as the major indexes come off lows.

Thursday’s traditional Follow Through Day (FTD) of an increase in buy-volume with the Nasdaq advancing 1.7% has us interested.

But according to IBD, the science has changed, and they are not calling for an FTD due to higher volatility in the market.

Without entering an academic debate over the subject, we trust IBD has done their homework and Thursday’s move isn’t as strong an indication as it once was.

But we still see Thursday’s accumulation as a positive.

After aggressive rate cuts by the Fed not seen for more than a decade, combined with an economic stimulus package from Congress, conditions couldn’t be more ripe for the rally to extend.

We’ve hoisted the Yellow Flag because we almost always give the Bull the benefit of the doubt. Just look major corrections of the 15%+ variety throughout history.

We also need to recognize that pessimism is coming off an extreme, which typically leads to a bounce.

But just how much gas the Bulls have is something to be seen. We’ll be just as quick to raise the Red or Green flag when the market tells us so.

The next test for the major indexes will be the 50-day moving averages, which they are now under.

The averages are often a magnet for price action to revert to, and how they handle these lines will be telling of their strength.

Bulls want to see selling volume drop off, this will be evident with down days happening on reduced volume.

We also want to see Leadership develop, which so far has been in Financials, Precious Metals, Home Builders and Transportation.

While it’s encouraging to see the Financials leading the pack, the total damage from bad loans made remains an uncertainty.

It’s not a stretch to see the recent boost in financials as the work of short-covering.

Market’s usually don’t handle these kinds of uncertainties well. This was the case with Enron’s accounting issues leading the market lower in the last Bear market.

With the exception of Transportation, the Leadership isn’t of the variety to back a new major leg up in the market.

We firmly believe the market ultimately goes where earnings go, which is why this earnings season will also be telling of the Bull’s ability to get back on track.

To the Bears argument, so far even good earnings reports are being sold. It’s never good when good news is rejected.