Super Light Trading, but Stocks End at Lows – Cash is still King
Following up on Friday’s gains the market gave a good chunk of the gains back. The selling really began after the release of the Dallas Federal Reserve manufacturing index fell more than expected. Although an improvement from last month’s reading the number disappointed and sellers took over. Volume at preliminary look was the lowest for this year which calls into question the big percentage decline. However, the steep decline and ending at the lows of the day does put a very negative spin on the day. Today was not your prototypical consolidation day and this market still needs more to prove itself even with leaders holding up well.
Low volume pullbacks are mostly considered a bullish signal, but when the market pulls back more than 100bps we take notice. Friday the S&P 500 and NASDAQ undercut their Wednesday’s low marking it day one of an attempted rally. We avoided a nasty distribution day with volume running 26% lower across the board, but ending at the lows puts doubts whether or not we can build upon Friday’s gains. Most Mondays have come on lighter volume and volume shows up a day later. This time will be important we avoid distribution and begin building accumulation. Without accumulation in the market our leaders will simply not pan out. If we do find the market building upon Friday’s gains it would signal deploying more capital in this market.
Many continue to point to the weakening economic conditions as a reason to sell this market. Perhaps this may be true and we are once again heading for another leg down, but we have yet to see real signs of break downs. If volume does come back in on the downside it will certainly signal to us we will continue to head lower. The other side of the coin is we do have plenty of leaders to take us higher and the battle now is whether or not we can move institutions off the sidelines into these leaders…
An interesting development is going on in the US Treasury ETFs, most notably TLT and AGG. On Friday many were rushing to call a top in the US Treasury market, but judging by today’s action those calling for a top may be a bit premature. Trying to pick an exact top or bottom is a fools game, but catching majority of a move is not. Keep in mind the best performing asset class in Japan since its stock market top has been its own debt. Do not underestimate the Federal Reserve and its power to prop up the US Treasury market.
Cash remains king until we get confirmation of a new trend…
