Lighter Trade Dominates as Stocks Mull over Bernanke’s Testimony

Stocks closed lower as the market rested on lower volume.  Friday’s volume got a boost by options expiry so lighter volume today was not a surprise.  However, it was nice to see stocks pull back in gentle fashion rather a sharp decline.  Bernanke’s testimony has given pause to traders as fears of a rate hike may curb stock gains.  The market did exactly what it needed to do today, a pullback in light trade.

The lighter volume pullback shows a bit of profit taking without heavy institutional selling.  While we could see institutions dump stock on any given day it was nice to see light selling after being up more than a handful of consecutive days.  It would be very constructive for the market to trade sideways with selling done on lighter trade.  We need to see the indexes to build accumulation here as many stocks hammer bases.

We continue to have plenty of highly rated stocks in the midst of forming proper bases.  During much of the 2009 market rally plenty of stocks moved higher, it was the lack of constructive patterns that was odd.  Currently, we do have a few stocks working in our favor and another handful who are building nice patterns.  We’ll need to have this continue and have this market cooperate in terms of shedding distribution.  The market is an important piece to the puzzle and without a strong market we won’t get our customary Monster Stocks.

The market still harbors 75% of stocks over their 20dma and while this may seem like a lot and due for a correction, but a sideways moving market can correct this.  Trying to guess a top is a fools game, but taking a look at how we have plenty of stocks setting up in bases we very well see this market move sideways working off any overbought indicators there may be.  One thing we’ll need to see is the continued strength in new highs and breadth.  Lagging breadth can often signal a market that is losing strength to the upside.

Stay disciplined and do not go and chase a stock.  Wait for a proper set up as chasing will lead you to cut your losses and deplete your trading capital.