Another Reversal Ahead of the Federal Reserve as Volume Ends Mixed

Back to back reversals has left the market in the balance as the market tries to work off its recent move from June 8th.  Volume was higher on the NYSE, but remained well below average.  Like the NYSE, the NASDAQ had much lower volume than the 50dma, but it finished lower than yesterday’s pace.  Therefore, the NASDAQ escaped a distribution day while the NYSE indexes ended the day with one.  Today was the first day of distribution since the follow-through day.  Even escaping a distribution day the action on the NASDAQ clearly shows the index needs to consolidate further before making another advance higher.  Cash continues to be king in this chop and slop environment.

The move off the June 8th lows has seen its lack of volume in both directions.  With the Federal Reserve rate announcement set to be released tomorrow at 2:15pm EST many traders are waiting to hear from the Federal Reserve and their take on monetary policy.  However you feel about the Federal Reserve they do move markets.  Tomorrow’s reaction to the statement will be important as if the market can’t muster any volume on upside it’ll be a sign buyers aren’t willing to accumulate shares and likely lower prices are near.

Last week I had mentioned the amount of stocks above their 20dma being just above 77%.  Today that number finished at 60% and while it has come back in the number is still a bit high.  For now, it has backed off extreme levels.  Only 33% of stocks stand above their 50dma a sign the market hasn’t been able to lift stocks above this important level.

Now that the S&P 500 has dipped back below its 200dma it has the bears out and bulls timid.  Just a reminder, June historically is a bad month for follow-through days as they tend to fail outright or fail to produce any meaningful rallies.  It is quite possible we see a chop and slop market ahead of us until the market settles down for another run to the upside.  It is important to see the market show accumulation here rather than low volume rallies.

Bottom line is cash is king in this low volume market environment.  The last two days will certainly have bulls frustrated, but the move off the lows have frustrated the bears.  It is best, sometimes to let both sides battle it out and wait for the proper time to be in the market.  Sitting in cash and enjoying the summer for the time being is a great place to be.  If there is further downside left in this market we’ll be on top of it or if the market catches a wave of accumulation we’ll certainly ride it higher.