Not looking too hard


Seller dominance left its Distribution mark on the volume count Monday.

We’re not going to look too much into it as it was lighter than the accumulation days made over the past few weeks.

But more distribution would be a clear warning to Bulls.

For those not familiar, Accumulation is an up day with volume greater than the previous day. Distribution is a down day with volume greater than the previous day.

Accumulation and Distribution mark where institutions are lining up, and are used to gauge the market’s friendliness for buyers and sellers.

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We’re just not there yet


The major indexes push further above their 50-day moving averages…

Smack dab into the technical resistance, which is marked at about 850 on the S&P 500 as well a downward trend line.

So far, buy volume is dominant.

Pullbacks are key to watch to see if volume dries up.

We’ll wait before deciding if this rally shows longer-term potential – we’re just not there yet.

Heavy buy-volume supports


The broader market is looking strong as heavy buy-volume supports the major indexes above their 50-day averages.

But we take caution over the massive overhead resistance, that’s potential sellers looking to unload shares as the market returns to higher levels of the past.

As we’ve mentioned, we’re suspicious of any rally that lacks a good Follow Through Day, which is the case now.

The parameters of what makes a good FTD have been altered for today’s more volatile market.

Where 2% used to mark a good FTD, we now prefer to see 3% to 4%.

But with or without an FTD we still need to see Leadership show a strong hand to support new breakouts.

Our latest breakout from a top earner, Green Mountain Coffee (GMCR), is looking questionable.

GMCR is the only candidate we have in breakout mode.

The bigger picture of buyer dominance


Tuesday’s light-volume pullback adds to the bigger picture of buyer dominance that we’ve seen over the past month.

This is an important clue to how well the major indexes will handle the 50-day moving averages they’re currently grappling with.

But we can’t ignore the fact that we really haven’t seen a good Follow Through Day to show strong institutional interest for this market.

No follow through…


Nice rally, but still no Follow Through Day.

We needed to see heavy buy volume come in. Without it the rally is suspect.

All enduring rallies have had Follow Through Days after four to eleven days from a market low.

With the 11th day pegged in today it doesn’t bode well.

Regardless, we would still need solid leadership from a group of stocks pegging new highs as we well as solid earnings momentum. Nothing there – yet.

It’s a gamble to start in with long positions


Nice rally on strong buy-volume.

But with the S&P 500 moving just 2% it’s not the 3% to 4% move we’re looking for.

Add in the resistance of the 50-day Moving Average, which the S&P is parked just under, it’s a gamble to start in with long positions…

The 50-day averages are key. How well price action handles in here in the coming sessions will be revealing.

Never bet against institutions


Nice move! But no Follow Through Day.

Watching volume is very important for this rally as a drying out of buyers will pave the way for short setups.

Moving averages act like magnets for prices. We suspect the S&P 500 is on its way to hitting to that resistance. (See blue line in chart above.)

But all bets are off if we get a Follow Through Day (FTD), which will come with a major rally of 3% to 4% on volume greater than the day before.

This would tell us that institutions are taking bets to the long side.

We never want to bet against the institutions.

Not quite the Follow Through Day we want


Nice rally, but not quite the Follow Through Day we want.

The S&P 500’s 4% rally is just the price advance we want. But with volume coming in shy of yesterday’s it’s not the sign of increased institutional buying we’ve been seeking.

But we still have another week-and-a-half of watching for it to happen.

We’re also looking for Leadership from specific sectors.

We like that the financial stocks are a key part of the drive. But they’re also long overdue for a reflex rally, and it’s often the most beaten that comes back sharply.

But the bottom line is we’re not changing our Bearish Bias until we get our FTD.


The more the better


Our Follow Through Day (FTD) watch begins Thursday.

At this point we have some degree of comfort that the short-sellers have had time to exit the market.

Any heavy buying from here on out will be considered institutional-grade interest, which is what our beloved FTD’s are meant to signify.

In this volatile market we’d want to see an advance with one of the major indexes of at least 3% or 5%. The more the better.

Such a move should also have heavy buying volume (bigger than the previous trading day) to be considered a viable FTD.

Massive Rally = Nervous Shorts


Massive Rally = Nervous Shorts

We’ve been here before.

Our new potential low set Tuesday starts our four day count for when we go into Follow Through Day (FTD) watch.

For those who don’t know, FTD’s are major upside moves in the broader market on high volume. Waiting four days gives short coverers time to get out, which tells us the buying is real and institutional grade.