Oversold Bounce Lasts Another Day with Volume on the Rise

Stocks rose for the second straight day as volume rose above average.  As the major market averages live below their 50dma the coming few days will be a very big tell on the direction of this market.  Today was a move in the right direction for the bulls in this market.  Rising volume on the day was a key component, but with the indexes still below their 50dma average we remain cautious on longs.

This rally very well could be setting up more shorting opportunities, but this is very premature.  We have some key economic data to be released and the biggest Friday morning with January jobs data.  If you are new to this market it would be prudent for you to stay away from both the long and short sides of the market.  Jumping the gun here may cost you more than just your capital, your confidence.  If this market produces a follow-through day you will have plenty of time getting back into the market.  If you are so inclined to jump into the long side make sure you cut your losses if the stock you purchase does not work immediately.  Be smart.

The two day rally the market has managed to stage has cleared extreme oversold conditions, but we aren’t out of the woods just yet.  Even though last Friday may have appeared to be capitulation we still haven’t seen the quality leadership to push us forward.  Last Fall we saw the market stall out after hitting new highs and roll back over.  The market lacked the much needed follow-through to produce the necessary leadership.  Again, we’ll be waiting to see the same thing.  If we fail to have a follow-through day it’ll more than likely signal that any new high hit won’t have too much push in it much like in January.  In the end, this may just be a push to put in a lower high and have the market roll back over.  Be patient.

Stay focused and disciplined.