Volume Lags as Stocks Jump Higher

Extreme oversold conditions setup Monday’s rebound.  Institutions failed to step up and support the market as volume was well off from Friday’s levels.  A stronger than expected ISM number set the tone for the market early on.  Volume really began to fall off as the day wore on and traders failed to be inspired with the rise in prices.  Market often bounce around rather than in straight lines, today proves oversold conditions produced a day’s worth of gains.

The lack of volume, extreme lack of volume certainly highlights the lack of conviction from the bull camp.  Last fall we saw volume drop during rebounds, but not by 25% or more.  While we are in Day 1 of an attempted rally today’s lack of volume certainly spells out trouble for this most recent attempt at a rally.  In addition, we have big cap leaders who are now below their 50dma.  In the fall, these stocks were still above key support levels like the 50 day moving average.  Today, many of these stocks are well below their respective 50 day moving average describing this current rally attempt as weak.

Oversold and overbought conditions can and very often do last much longer than we can expect.  It would not be a surprise if this market continued to rally for a few days to work off the current oversold conditions.  However, the lack of volume really does not provide the conviction needed to at least give this rally attempt a shot.  Tomorrow may be a different story with volume rushing in and supporting stocks, but for now we simply do not have the institutional support needed to carry this rally higher.

A bit of education is a rally attempt starts its count on the day of the most recent low.  In this case last Friday was the low and is day 1 of this attempted rally.  Volume certainly was there on Friday, but the lack of thrust-off-the-bottom to show buyers were stepping up.  We’ll continue to look for strength to see if this market will turn higher or continue its path of least resistance.

The current correction is currently in week 3 and certainly hasn’t been long enough to produce the proper charts.  However, if we are able to turn here soon we do have some setups that will produce gains for us.  Until then, we continue to plow forward with the market.

Enjoy Tuesday’s action.