A late-session rally pushed stocks to posting only modest losses Wednesday.
It’s usually the smart money that ends trading.
We’ve seen a number of late-day rallies over the last few weeks.
This market has barely budged to the downside.
Yet Tuesday’s Distribution needs to be factored in. A couple more of them and we’ll start leaning to a Bearish bias.
Heavy-selling Tuesday gives us a glimpse of the Bear’s strength.
If we see a couple more similar down days with volume more than the day before it will be clear warning sign.
While we respect the powerful uptrend, we also believe that gap on the S&P chart made a few weeks ago will be filled.
We’re taking it day-by-day here.
Notch in another day of Accumulation for the S&P 500.
When we say Accumulation we mean that the market rallied on volume greater than the day before.
This is an indication that institutions are favoring the Long side of the market.
We expect the S&P will at the very least hit its 1,000 mark.
These large rounded numbers are like magnets for price-action.
Big Rally + Heavy Volume = Clear Bullish Power
Thursday’s rally came as a surprise, taking out a key former high and undoubtedly burning some short-sellers.
We’re going to take a broad and thorough look at Leadership in this market for our next Weekly Market Report.
Summer’s aren’t known for their rallies. A scenario where institutions may be running up prices for better sell entries may very well at hand.
But that doesn’t exclude taking advantage of the nice buy weather with ideal breakout buy candidates lining up.
Mostly flat price-action on the major indexes for Wednesday.
Because volume wasn’t any higher than yesterday’s for the Dow 30, S&P 500 and Nasdaq we’re not going to read to much into it.
What has technicians on alert is the gap left on the S&P when it opened higher a couple weeks ago.
Statistically, those gaps are almost always filled at some point, which means a sell-off erasing recent gains becomes imminent.
But timing such things is tough.
And we’re not pure technicians anyway.
Over time it’s the our understanding that stocks move in the direction of their earnings and price and volume reveal the true trend.
Smart money usually closes trading sessions.
After the major indexes sagged around for most of the day they eventually caught nice bids.
But we also need to take note of what’s going on with Broker Dealers, Semiconductors and Retail, which are also good predictors of trend, and were all negative.
Common sense would leave us to believe the market is tired and due for a pullback.
But markets are known for shredding up common sense scenarios.
We’re not going to make any calls here.
Market’s still running with a head of steam.
New year-highs have been pegged, or are about to be pegged.
Shorts feel the burn. Longs are being paid.
Strong follow-thru from Wednesday’s massive rally has the charts looking more bullish.
We wouldn’t dare step in front of this as sellers. Not unless we saw Leadership start to crumble or heavy sell volume set in.
It pays to be flexible. We have no pride to swallow when it comes to changing our bias.
It’s how we stay profitable.
Hefty buying across the market allowed the Dow 30 and S&P 500 to regain its 50-day moving averages.
This is key. So if it sticks we’re changing our bias to Buyer’s Caution.
More revealing for the potential success of our beloved Growth Stocks will be how well recent breakouts hold up this week.
We’ll save our analysis for the end of the week as more evidence mounts the next two day.
The bounce continues. While buy-volume didn’t take out yesterday’s to qualify for an Accumulation day, it was still strong.
Moving averages are still key. The Nasdaq is just above the all-critical 50-day average, while the Dow 30 and S&P 500 are below.
We’re not going to change our Seller’s bias until those averages are taken out.
It’s still earnings season. High volatility in here may still be expected.
Strong rallies on heavy volume bodes well for the Bulls.
We want to see more evidence of institutional interest for this market before we shift our bias from Seller’s Edge.
One day means little. The dominant trend will be more apparent to us at the end of the week as we add up all that’s set to go down for this key week for earnings.
TUESDAY: Altera Corporation (ALTR), Goldman Sachs (GS), Intel Corporation (INTC), Johnson & Johnson (JNJ), Palm Harbor Homes (PHHM), Yum! Brands, Inc. (YUM)
WEDNESDAY: Abbott (ABT), Universal Forest Products, Inc. (UFPI), W.W. Grainger (GWW), Xilinx, Inc. (XLNX)
THURSDAY: Baxter International Inc. (BAX), Cubist Pharmaceuticals, Inc. (CBST), Google (GOOG), Harley-Davidson (HOG), International Business Machines (IBM), JPMorgan Chase & Co. (JPM), Marriott International (MAR)
FRIDAY: Citigroup Inc. (C), Mattel (MAT)
Today’s mild rally looks more like a minor detour on the Bear’s dominant path.
Though our bias is to the Seller, we’re always extra-cautious when it comes to short positions. They can turn around violently with little notice.
Technical traders are taking note of the head-and-shoulders pattern on the daily chart. Sometimes these patterns work, sometimes they don’t.