For the fourth day out of five the stock market rises on the hope of European leaders being able solve the debt crisis plaguing the continent. Despite a late day sell-off the market was able to rally back to the highs of the session with the NASDAQ closing on its highs. Volume fell sharply, more than 24% across the board showing institutions were either on vacation or simply not interested in accumulating shares. Whatever the reason, the massive volatility in the market continues and the move off Tuesday’s low continues to wedge higher.
In an interesting turn of events NFLX cancelled its plans to spin off its DVD business. It reminds me when Coke introduced Coke two, only to scrap its plans. Early morning trading certainly indicated traders and investors alike were cheering the move. However, by the close things weren’t rosy. Never and we mean never try to catch a falling knife. You may just be NFLX’d.
It really is no surprise to us this market was pushing higher, but with the lack of volume it is troubling. Stock market bottoms will always flash a few days of accumulation prior to the follow-through day. Today was day five of an attempted rally and we only have one day of accumulation and that was Tuesday (day one). Now we are almost 300 points off the lows and we can’t get any accumulation? If this rally has any chance we’ll need to see the market consolidate the recent move and try to confirm the rally later this week. A few key points will be the market will need to avoid major distribution and we’ll need to see leadership broaden.
Most everyone has seen the large spread between bulls and bears on the Investors Intelligence sentiment survey. This week we’ll get another chance to see whether or not the spread increased or if it will pull back. Interestingly enough the AAII bulls have been increasing since the market has hit lows. However, the bears have been able to maintain a level above 40%. It will be interesting to see if the recent move in the stock market has been able to change sentiment.
In spite of the recent market action, the volatility as of late leads us to believe Cash is King! This market needs some serious consolidation before we can make a longer-term sustainable rally.
