Columbus day kept heavy volume on the sidelines as stocks find late day footing. Institutions were on the sidelines as many await earnings season. For most of the day trading was quite a bore as volume remained painfully low until the early afternoon when prices began to come under pressure. Volume did perk up as stocks reached the lows of the session, but found much needed support. At the close the NASDAQ finished just under its mid-point while the S&P 500 finished above it. Leaders bounced around on below average volume, but nothing to get exciteda bout in either direction. Monday’s trading session started and ended in a boring fashion.
The S&P 500 does appear to be the leading stock index among the “majors” when looking at price and volume action. Our leading stock indexes still maintain the edge, but as far as price action is concerned S&P 500 is right there at the top. The NASDAQ is right on its heals, but has failed to over take the large cap index. While not ideal, we have nice price gains on lower volume. We certainly need to see volume especially if the S&P and NASDAQ want to crack through their highs. If volume doesn’t appear it will signal institutions are not behind the move and would signal warning signs that we may be nearing a top.
Price Action of the S&P 500 and NASDAQ:
Remember, we have nice price action we need volume to come into the market.
Earnings season is upon us and it certainly appears insitutions are waiting to see how companies fair during this season. It isn’t hard to blame fund managers for sitting on the sidelines given the negativity on the economy. However, with the market performing quite well and many funds not achieving the same success it might sugggest managers may chase for performance. Staying away from predicting a run away market we should really focus on the leaders and market action.
While many focus on the major stock indexes Small Caps are quietly performing well. Last week the S&P600 was able to pull off two very nice days of accumulation. The accumulation shows the willingness of insitutions to make bets on smaller companies and risk appetite. While this is a positive sign it certainly doesn’t mean we blindly buy small cap stocks. It is simply another piece to the puzzle and something that should be looked at in a positive light. Here is a P&F of the S&P 600:
We are not seeing the amount of stocks over their 20dma like we did a few weeks back when the market hit highs. There are 66% of stocks over their 20dma when we were last at these highs the market witnessed 85% of stocks over their 20dma. From this standpoint we aren’t near the same level of “overboughtness” as we were at the September highs.
A flury of new highs as the NASDAQ and NYSE saw 699 new highs on the day while only 7 stocks hit new lows. It is pretty clear that is a healthy ratio of new highs versus new lows. As we’ve stated in the past it takes this type of bias on the side of new highs to get monster stocks!
To put it plain and simple, if we get volume selling I’d get defensive. On the contrary, if we get volume to the upside then I am staying on the long side. Earnings season will provide the catalyst in either direction, for now it appears the upside is the path of least resistance.
