A bounce off lows that doesn’t match the volume of recent carnage is highly suspect.
Measuring the volume behind moves is at the core of our strategy. Volume patterns often lead the price action. It tells us where institutions are placing their bets. It’s nothing we want to be on the opposite side of.
The market’s pounding last week produced two Distribution Days, where volume was greater than day before as prices declined on the major indexes.
We’ll want to see some Accumulation, where higher volume accompanies up days, before altering our current Seller’s Bias.
This will be an interesting week as we continue to watch for signs of how well U.S. equities handle Europe’s ongoing financial crisis.
We had another day of Distribution on the major indexes to kick off a holiday shortened week.
Continued institutional-grade selling has us cautious.
We might expect to see another round of lows in the coming sessions. Such an event could just as easily trigger a capitulation followed up by bottom buyers. In other words, look out for increased volatility, buckle up.
Lack of high-quality growth stocks setting up for new highs prevents us from entering the market. As for shorts, perhaps we’ll see some entries worth noting this week.