Market Burn

Just when the market looks like complete crap, we get a high-volume rally off the lows.

We’ve seen this scenario time and again. That’s why we’re sitting on cash.

If you’re a bull – you’ve been burned. If you’re short – you’re now fearing the parade of new lows has come to a halt.

Though the major indexes and sectors remain in key technical support areas where we might expect a bounce, we’re not likely to change our Sell Bias anytime soon.

A dominance of institutional selling over the past week has helped put together a pretty ugly picture. As far as the charts are concerned, nearly everything has broken step from a strong uptrend.

To be bulls, we’ll need to see a sturdy Follow Through Day (FTD), where one of the major indexes rallies above 1.7% on volume greater than the day before in a show of institutional support for the market.

A “weak” FTD made a few days ago on the Nasdaq was canceled when it hit a new low Tuesday. We begin looking for a new one beginning next week, giving shorts plenty of time to cover shares before we try to identify real buyers.

We also want to see the key sectors of finance (XLF) and semiconductors (SMH) regain their 40-week moving averages, where Retail (XRT) already looks to be attempting a bounce from.