Lacking any inspiration stocks moved higher on very light trade suggesting buying interest is simply too weak. Recovering from a steap price decline where many leaders were shaken hard it really shouldn’t have come as a surprise that a lift in stock prices came on very light. Stocks were helped by a drop in Producer Price Index showing a larger than expected decrease in prices. The hope is lower prices at the counter will help put more discretionary dollars in the consumer’s pocket. Price gains were solid, but the lack of volume shown by stocks merely suggest shorts were covering and institutional players weren’t supporting the market.
Leading stocks rebounded, but again the theme of the day was the lack of volume and our leaders fit that bill today. The price gains simply did not have the vigor that would excite me to get the feeling we’ll move higher. Buying interest from institutional investors are the key to any market uptrend and right now we are missing that important piece. We also have to keep in mind it was the beaten down stocks who lead us off the March lows and it wasn’t leading stocks.
One thing Monday’s sell-off brought was lower the number of stocks above their 20dma to 44%. Tuesday’s market session pushed the number of stocks above their 20dma to 53%. Keep in mind at the peak more than 80% of stocks were over their 20dma, an extreme by this measure. Any time we get a reading above 80% the market needs to work off the overbought conditions.
There isn’t a market oracle out there that can predict where this market will head next, but judging by the lack of buying we experienced today the market will more than likely see Monday’s lows breached. This scenerio may not play out if insititutional buyers step up and accumulate shares, but the probability of this occuring remain low. Keep in mind downside volume has not compared to the upside volume we saw during July’s rally. Using the upside volume as a barometer, the smaller downside volume suggests the market will find support as the institutions who were accumulating shares in July will more than likely defend their positions. For now we will more than like see the market drift lower as it tries to find an area of support.
Now isn’t the time to be putting cash to work as we’ll need to see a bonafide follow-through day. As the market went into correction mode it turns out it is Day 1 of an attempted rally. I am leaning towards thinking Monday’s lows will be breached soon reseting the day count for a market follow through day. Until then, it is wise to update your watch list as we have done with ours at Big Wave Trading so we can be ready for either a new uptrend or more lows.
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