Traders Take a Step Back as Stocks and Volume Slide

Gold and silver continued their downward move flushing out weak hands as the dollar continued its counter-trend rally.  Outside the dollar and precious metals, stocks simply enjoyed a low volume pull back with the action resembling paint drying on the wall.  It was a much needed day as the market notched an inside day.  Selling pressure simply couldn’t gain enough steam, about 2pm stocks appeared to be headed towards another hefty reversal.  But, buyers stepped into the mix and kept prices falling further.  An inside day on low volume shifted the day towards the positive end of the spectrum.

There are 13 trading days left till Christmas and we still await the Santa Claus rally.  We still remain in an uptrend and although there is plenty of pressure for this market to move to the downside we have avoided it thus far.  The market is still quite overdue for a correction, not a collapse.  Many traders seem to think we will have another crash like October and November of 2008.  It’ll be more like a 15-20% correction lasting anywhere between 3-9 months.  Preferably, we’d like to see a 15% correction lasting 3-5 months.  However, regardless of what may happen we have to deal with the here and now.  And that is, we remain in an uptrend and we are taking signals from individual stocks.

Small caps enjoyed a nice day of consolidation, but still could be forming a second right shoulder.  The current price action suggests the index will take out the true right shoulder rendering the head and shoulder top actually coming to fruition.  At this time, it is premature to guess or gamble where the index is headed next.  What we know now is we have seen small caps get much needed support and they remain in an uptrend.

The SOX index is another interest index to be paying attention to as it is nearing new high territory.  It has enjoyed a nice December with the index enjoying some very nice gains.  In fact, the SOX index broke the neckline of an inverted head and shoulders pattern.  Now, the index should be watched as it takes on its new high territory as the the last time the index did not fair too well.  Again, the index is acting nicely and until it changes course we continue to signal higher equity prices.

Today was a good day for the uptrend we have in place, keeping in perspective we have run well off the lows.  The length of this uptrend without a correction continues to be  a point of contention, but we can still move higher.  We continue to take our cues from the market and our chat room participants are enjoying some added picks.  Stay nimble and enjoy.