That clear, red volume bar rearing out above yesterday’s is a mocking middle finger of Distribution to the Bull.
We do have a meager Follow Through Day for Tuesday, meriting a Buyer’s Caution bias from us.
But, but, but (we hate using that word), we need to see some successful breakouts and an industry group or two establish some Leadership before getting excited.
There’s nothing to buy right now anyway. Except for Silver, maybe.
Anyway, here’s the chart:
The major indexes went into full rally mode to close out a day that saw the FOMC say it would keep rates low for a couple more years as severe challenges remain to the economy.
High volume, though not quite as high as yesterday’s sell off, gives some evidence a turning point may have occured.
We’ll start looking for signs of institutional buying on Friday, or a Follow Through Day, which would give further evidence of a potential bottom.
No guessing here. These Follow Through Days we’re looking for involve about a 2% up move in one of the major indexes accompanied by volume greater than the day before. We wait a few days to give the short sellers time to cover so as not to confuse it with real buying.
Disciples of William O’Neil’s CANSLIM methodology know exactly what this is. We’ve seen the indicator work often enough to watch for it ourselves.
Hi-dee-ho and hamburger!
The S&P 500 fell 6.66% Monday, down nearly 80 points for one of its worst losses in history.
The media will tell you it’s all because of the U.S. credit downgrade by Standard & Poor’s. That may be the case.
What we can say for sure is that Standard & Poor’s shouldn’t be given much credit for its work after missing the call on the entire subprime market before it collapsed. The sole purpose of this agency is serve as a risk guide for buyers. And one could argue they’re responsible for the debt this country now owes after it had to bail out the banks it once deemed financially stable.
But none of this really matters now. We don’t live in theoretical land. What we have here is a frightened market that will likely shake out sellers in a hurry, possibly setting up for a Bull leg we can trade on.
Until we have evidence of that we’re sticking with our Sell Bias right now.
Wednesday’s high volume u-turn off lows has the makings of a key pivot on the charts.
But we’ll give the market some time to let us know if it’s the start of a new bull leg, a brief intermission from selling or something in between.
Beginning Monday we’ll be on the look for a Follow Through day, where a 2% move on heavy volume with one of the major indexes would give us a hint institutional grade buyers are active. Without institutional buyers the Bull is suspect.
We wait a few days to give shorts time to cover.