Last Tuesday, the S&P500 became the first major index to rise above resistance of its downward trend line. On Friday, the Dow too, was able to follow in the S&P’s footsteps. Time to jump into long positions right? Not so fast. There are some glaring red flags indicating that this market is still on shaky ground. The big concern is volume (more on that in a minute), but there are also problems with the number of high quality successful breakouts. Friday, I remember scanning my database as well as other info sources for high quality breakouts.. outside of PVTB, I wasn’t seeing much that interested me. A run down of the charts revealed many moves were ocurring off oversold conditions and many of those moves lacked volume. Clearly, high growth stocks have lost their luster of late. Not what you want to see in a market rally. With big pharma, cigarettes, select banks, utilities and some large cap names like AT&T (T) and Comcast (CMCSA) doing well, traders continue to put money into the more defensive areas.
The biggest concern is the lack of volume behind the latest market rallies, most notably last Tuesday and again on Friday as the Dow also broke through resistance of its downward trend line. I for one am becoming increasingly skeptical of this two week surge in the market. With more resistance levels on the horizon, it pays to remain largely on the sidelines until we get a big price AND volume move. That would signal that the big fellas have come to play the long side.. and a signal for you to follow their lead.
Taking a look at the chart of the S&P 500 below, you see that the index made some key moves last week by clearing 3 resistance levels of the 50/200 day moving averages and the downward trend line. It also remains above the 2 year trend line I’ve discussed in previous reports. That’s the good news. The bad news as I mentioned above is that lack of volume (in addition to looming resistance areas somewhere between 1280 -1290). Looks like we’re going to see some selling very soon. Pay attention to volume levels on the sell side. Are institutions using the rally to dump shares? That would show up in increasing sell volume levels in the coming days.
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Not surprising, the Dow looks very similar. It too cleared several resistance areas last week but looks shaky up here (at least in the short term) with a lack of momentum behind the move as it faces another round of resistance.
The Nasdaq has long a way to go before you could declare a new uptrend. It has yet to clear any resistance levels and still remains submerged below that 2 year trend line I have discussed in past market reports. It’s difficult to have a sustained market rally without the Naz involved.