Economic data gave a boost to premarket futures pushing the market to gap more than one percent at the open. The euphoria at the open did not last long unfortunately as sellers took to the market. It wasn’t long before the NASDAQ dipped into the red; buyers weren’t keen on keeping the market in the green. After hitting the lows of the session the market was able to recover a bit, but was unable to sustain any rally. A lackluster day for the market after a promising start to the day and the bulls continue to wait for their Santa Claus rally.
AMZN was able to recover a bit, but like the rest of the market was unable to hold the highs of the session. The stock has been under tremendous pressure despite what appears to be a decent holiday season. It goes to show you no matter what the fundamental story may be price and volume is far superior than the fundamental story.
What is a bit amusing is the market put in Day 1 of an attempted rally. It is highly unlikely any rally here would be sustainable with the plethora of leaders being broken. If the market does rally, pay attention to potential leadership (I say with heavy sarcasm, there isn’t much) as well is overall volume. If volume cannot expand with a rally, it spells trouble for the rally. We can just take a look at what happened during the previous rally.
Sentiment is still rather mixed, but favoring the bulls. The AAII survey showed the number of bulls creeping up to 40% while bears holding at 33%. I wouldn’t say either side is at an extreme. Even the Investors Intelligence survey is not overly bullish. Only 45% of respondents are bullish, well off the 62% high of this year. In addition, I would like to point out the short interest ratio on the NYSE. The short interest ratio on the NYSE is at 16.08%! The five year high which is 17.99 reached in 2008/9, but the ratio now is at a 52 week high. If there is anything supporting a rally, the number of shorts certainly may be a catalyst to push the market higher.
I wouldn’t bet on sentiment or short-interest ratio as they are imperfect by nature. Price and volume action are what I want to focus on and your focus should be. Perhaps the shorts are right here and this market collapses. However, if the market does not, look out all those shorts will have to cover and a violent rally will ensue. Remember; cut your losses short regardless if you are long or short. It is a wise move!
