Thursday’s modest selling gives pause to the sharp rally that began a week ago today.

We’ve maintained a Sell Bias throughout this recent upsurge.

Lack of volume clues, via Accumulation or Distribution days on the major indexes, gives us little to go on.

Two things need to happen for us to shift our bias to either Caution or Buy:

1. The indexes need to reclaim their 50-day moving averages.

2. We want to see a Follow Through Day with at least one of the major indexes posting a 2% rally on volume significantly greater than the previous day.

Together, these events would indicate institutions are sponsoring further price advances.  Without them, we’ll continue to call this rally suspect.

On a positive note, Campbell Soup (CPB), Altria (MO), Pepsico (PEP) and Sara Lee (SLE) have broken out of 52-week bases. All appear to be holding gains, though PEP’s heavy selling volume today gives some caution.

IBM (IBM) is also appealing as a Tech stock primed to do the same.

Growth Stock breakout Affymax (AFFY) has also posted distribution. Its ability to hold new highs will be telling of other fast growers eying new highs, as will the recent breakout of Maidenform Brands (MFB), Hasbro (HAS) and Akamai (AKAM.)

We’re getting close to adding more short positions. We’ll wait to see how Friday goes first.