The attempted rally continues with the NASDAQ jumping 114 basis points, but the red mark was volume coming in sluggish fashion. Leading stocks did their best to bounce off support levels, but there wasn’t a big push in many names. While today may have been an aberration, it does not instill confidence this rally attempt has much steam left in it. The only economic news of the day came from Mortgage Applications jumped 7.8% due to refinancing. At this point, this is merely an oversold bounce with weak volume.
Volume is key signal here as we’d be more bullish if institutions got behind today’s move. Volume was down more than 10% on the NYSE and more than 16% on the NASDAQ. I would have accepted if volume trailed one or two percent, but double-digit is something to take notice. Institutions were simply not actively participating in buying up shares today. They very well could operate on the buy side tomorrow, but for now they are not buying into this market bounce. The most likely scenario will be institutions selling into this rally sucking in eager dip buyers.
The NASDAQ has been able to hold onto its 50 day moving average, a positive signal for the market. Today was day two of an attempted rally and we could still see a follow-through day occur over the next week or so. While the market has never rallied with out a follow-through day many do fail and it would not surprise me even if we were able to muster a follow-through day it would be sustainable. Unlike September 1st, 2010 this market isn’t coming off a multi-month, double digit % decline correction. If so, I’d be more bullish on the opportunity to make money on the long side of the market. For now, we’ll respect it, but I would not hold my breath for this market to continue higher.
Continue to tread this market with caution and not try to outsmart it either. Pick your spots and do not get overzealous with your trading. Overtrading will only lead to churn in your account. Stick to a disciplined approach and always cut your losses short.
