TECHNICAL PERSPECTIVE: WHERE’S THE VOLUME?
By Decision Point:
FROM A SUBSCRIBER: Hi Carl. I’ve never written but have followed you for many years (since AOL) and have learned more about reading the market from you than any other source. You have such a clear and common sense view that it is really refreshing. I love the new daily blogs and am so glad Erin is learning the ropes. I would write her directly, but don’t see her email address anywhere. I rarely disagree with what is said, but in this case I am very suspicious of a bullish interpretation of today’s (May 27) rally, mostly due to the low volume. It seems more like a bear market, short covering rally to me. Was wondering what you think of the volume issue. Thanks for any comments.
Thanks for the compliment!
I try not to engage in discussions in order to reconcile differences of opinion about the market, because, even if I manage to convince my “opponent”, it doesn’t mean I’ll be right about the outcome. We try to be methodical in our analysis and clear in presenting our conclusions.
After several days of sloppy, downward-sliding price action, on Thursday the market finally had the first day of what could be a full rebound from very oversold conditions. Sloppy action in oversold conditions signals a very dangerous situation, one from which a crash can result, and on Thursday we breathed our first conditional sigh of relief.
While we have emphasized the danger involved “buying into weakness” with oversold markets, we have believed that the odds favor an end to the correction because we are technically in a long-term bull market, and corrections rarely morph into bear markets in those conditions.
It is true that volume was pathetic, but volume has been unimpressive throughout this bull market, and for Thursday there is also the issue of the upcoming Memorial Day weekend. People are leaving town early.
We can also see a clear descending wedge pattern, a bullish pattern which has a high reliability for resolving to the upside.
Most important is our philosophy that price is primary, breadth and volume are secondary. Not that we don’t look at breadth and volume, but they need to be subjectively interpreted based upon the bull or bear bias of the market. As a result, none of our mechanical timing models have any reference to breadth or volume indicators.
We are currently in a neutral market posture, but we are expecting a new buy signal to be generated as prices rebound out of a double bottom, but don’t act prematurely unless you have a short-term strategy that works for you. Wait for it. (We will be covering the criteria for the new buy signal later in this blog.)
How do you explain the anemic volume from the breakout of the what appeared to be a H&S bottom in April of ’09. This seems to be a confirmation that this time it is different and that this is not a bear market rally.
“Sloppy action in oversold conditions signals a very dangerous situation, one from which a crash can result– While we have emphasized the danger involved “buying into weakness” with oversold markets, we have believed that the odds favor an end to the correction because we are technically in a long-term bull market, and corrections rarely morph into bear markets in those conditions”—Decision Point
From the Kitchen table on The Gulf Coast:
We are having Blackened Shrimp ( a little Oily) with some “Cajun Spices” and a can of Bardahl– our motor is running good!
The Hard Close on Monday was a “Good Night Gracie” signal and Tuesday’s opening confirmed that fact. The Bulls spent the rest of the week trying to recover from that punch–and brought the S&P500 back level–thats a positive for the Bulls.
The Trend Conditions:
Boom and Bust Trend (4yr): UP/Tentative
The S&P500 Monthly close sits right on its 12Month-EMA. On the Edge of the Cliff
a MONTH ENDING CLOSE below 1060 on the S&P would be confirmation of a change to the “Bear”
Intermediate Trend: Down / -Neutral
The S&P500 on a Weekly basis remains “Overbought”– it will take several weeks of Down/Sideways price action to resolve this condition.
The S&P500 Weekly close sits right on its 52WK-EMA–again on the Edge of a Cliff.
Support confirmed at 1070–A weekly close below that level would be another confirmation of a Trend change to “Down” Logical levels of “Support” are 1024 and 960 on the S&P500
Resistance confirmed at 1100-1120–
A weekly close above that level would give the “Bulls” Hope!
The Bulls need a weekly close above 1156–1170 to Confirm the ” Boom and Bust” Trend.
Negatives going forward:
The “Senior Averages” are trading on the News–never a good sign.
The Bond Market is indicating its “Risk Averse” nature.
The International conditions (Europe) continue to weaken.
Looking at Europe is like looking at a “Cow Terd” does not change much but gets “stinky-er” by the Month.
Positon Guides:
As “Yogi” would say when you come to a fork in the road–take it
Buy –A weekly close above 1156
Sell– A weekly close below 1070
Or as ” Clint” would say ” Do you feel lucky Punk”
This post is for educational purpose only–NO Warranty Given”
I don’t know much about technical analysis, but a graph of the DOW looks an awful lot like the beginnings of the last 2007-2008 top. The same kind of 1000-2000 point ups and downs that have a 2-3 month timescale.
http://finance.yahoo.com/q/bc?s=%5EDJI&t=5y&l=on&z=m&q=l&c=
And the market has basically done nothing but oscillate around 10000 since the dotcom crash, 10 years ago. A sideways market. So the question is when do we finally break out, one way or the other?
Long term bull market? Huh?
Descending wedge? Ask the bears how those ascending wedges worked out over the last year.
I see lower lows and *potentially* another lower high forming. After Friday’s close below the 200 day the ball is in the bull’s court to prove we haven’t changed direction.