The waning.

Things get quiet absent major news.

Sell-side volume looks to be waning, giving rise to the probability that buyers will be stronger in coming sessions.

And yes, there was a Follow Through Day* on the Dow made a week ago, but not for the S&P 500 and Nasdaq.

We’re keeping our Seller’s Edge flag up for lack of Leadership and broader Institutional Support in the market.

Technology shares are suspiciously reluctant to rally, we need to be reminded this is still a seller’s market.

To sum it up without making the mistake of overanalyzing the situation:

Let the market prove itself to you. If we break down we’ll look for more shorting opportunities.

If we rally, we’ll gauge its friendliness insofar as Leadership and Institutional Support for buying opportunities.

* An FTD occurs between four and 11 days of a potential low, and is marked by close to a 2% gain on one of the major indexes. We wait four days to give shorts time to clear out.

Roar Back!

The Bulls come roaring back.

But Tuesday’s buy-volume didn’t match the heavy distribution of Monday.

It’s hard to see and advantage for shorts right now.

As price action points upward, a record number of short sellers are bound to feal the itch to cover.

The S&P 500 has basically double-bottomed. Odds are there will be some type of test to the upside.

What we need to watch for is a Follow Through Day, which happens between four and 11 days of a potential market low with one of the major indexes up close to 2%.

We are also on the watch for new Leadership to emerge to give us and indication that a sustained upside rally is being backed by institutions.

Where the battle breaks

Another end-of-the-day rally sticks it to the Bears.

Evidence shifts to the Bull’s immediate advantage.

Two days of accumulation, bad news shaken off and several new highs from top fundamental stocks threatens to burn shorts.

But hasn’t been a good market for Bulls or Bears in the last month.

Only time will tell where the battle breaks and a new trend begins.

Fed to the rescue

Just when the market looks its worse, it’s the Fed to the rescue.

Shorting the market is just plain harder then buying. It’s instances like this that make short sellers nervous and triggers sharp rallies off lows.

Today’s heavy buy volume is enough to recognize that a potential pivot point has been set, a point from which we may rally from.

Whether of not the Fed’s $200 billion loan it has promised to give financial institutions does any good is another question entirely.

Who wants to sell?

The market wants to sell.

Failed breakouts, heavy sell-volume and bad reactions to bad news make the message clear.

We’re looking at the recent low of 1275 on the S&P 500 for a test. What happens there we’ll discern as it unfolds.

We expect volatility to pick it up a notch, but it wouldn’t be the first time to see price action do a screaming reversal as shorts are slaughtered near a retest.

The idea is to use tight stops and limit any damage from the bet going against you.

We’ve seen bear markets before

We’ve seen bear markets before.

They drag on, torturing market players, setting up potential breakout buys that only collapse.

Subscribers to our Weekly Setups have watched two top-quality stocks breakout last week, but smart money isn’t buying because they’re only indicators.

If the stocks breakout and pick up momentum it could open the door for other stocks now setting up.

But if we begin to see breakout failures it’s just evidence that the bear is alive and well.

Friday’s heavy distribution is ominous.

We’re on the cusp of hoisting our Red Flag sell bias indicator, but are curious about this recent uptick with breakout candidates.

And its no coincidence that the breakouts occurred as key indexes test their 50-day averages.

These averages serve as tests of market strength, and come in play over an and over in good markets and bad.

Right now the heavy selling from the downward trending averages is telling us it wants to go down more.

If price action on the major indexes breaks down through the month-long trading range it’s established, and recent breakouts falter – it’s inviting short opportunities.

There’s nothing else to say or think about the matter, prepare to act accordingly.

And if the Bull emerges, which it’s known to do just when things look as bad as they do, keep an eye on the bellwether breakouts.

This week could be a pivotal one. Especially with Employment data out Friday.