The market had a sense of optimism as the market came off day one of a new attempt at a rally.  Although the pace of volume was slowing price action was picking up steam throughout much of the morning.  As the mid-day approach the major indexes had moved more than 1% off yesterday’s close.  All seemed to be well with solid price gains even without the volume, but the Federal Reserve’s Beige Book was set to be released at 2:00pm EST.  Stocks slid lower as sellers were getting out ahead of the release.  Although the Federal Reserve noted that all 12 regions were growing sellers continued their pressure, but it wasn’t until news regarding the financial reform bill that really hit stocks.  By the end of the day, a little five minute left kept stocks closing on their lows.  Day two of another attempted rally leaves a sour taste, but the rally attempt isn’t over, yet.

While the rally isn’t over just yet the way the market rolled over in the afternoon certainly gives pause to whether or not we can even sustain a rally more than a few days long.  If volume was higher today the success rate of this attempted rally would be close to zero percent.  As that wasn’t the case today with volume coming in lower there is still a chance this rally could form into a new uptrend.  My hesitation is the lack of leadership forming and not too mention the big stock leadership has quickly dwindled to nothing.  A market that lacks quality leadership will essentially go nowhere.

Its been a few posts since I have mentioned the put/call ratio and today the ratio ended at 1.03.  Essentially, without index options the ratio would still be below 1.0 a level that continues to have sellers have very little fear.  Perhaps there is a paradigm shift in how options are used, but the mere fact traders aren’t buying puts on single name equities is telling.  It is more likely there are large bets being placed for the market to rally from here and a bounce higher would reward those buying call options.  Simply put (pun intended), the majority believe this market will bounce off these levels.

It remains clear to us this market still remains in dangerous territory.  The lack of quality chart patterns is quite disturbing to us.  Even in March of 2009 there were a few clear winners jumping out of the gate.  Today, we simply do not have the leadership necessary to sustain any meaningful rally from here.  Let alone produce big winners like we have seen in the past.  Cash still remains king and will continue to remain king for quite some time.

This is the best time to keep up with your studies of the market and past big winners.  It is highly probable when this correction is over a solid uptrend will produce some nice gains.

Enjoy!