Tuesday, April 5, 2011

Market Looks Weak, but will the Rally Stop?

This market is a snoozefest for a sidelined bear.  Internals continue to be lethargic, but price continues higher anyway.  Today's NYSE volume was a whopping 829 million on a flat day.  Very few traders have any interest in the markets right now.  And I'm one of them.  I still feel that when volume returns, we need to watch the price action and follow the herd, whichever way it's going.  Until then, I'm avoiding this thinly traded market right now.

Above is the S&P SPDR (SPY) illustrating the weakening momentum with volume increasing on the decline and decreasing on the market's rally.  Also note that the RSI has a bearish divergence in place and suggests at least a short term pullback is just ahead.

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Lastly, the major indices are diverging at the moment creating yet another bearish setup and opportunity for the bears to smack this market down, if they want to.  So far the bears have failed to muster up any strength, and when they have, they have failed to sustain it.  But above you'll see that the Dow has made a new high yet the Nasdaq Composite and the S&P has not.  As long as this divergence remains in place, the market is very vulnerable to sell off.  I personally would wait for some signs of a top, like an impulsive decline or midday reversal.  But for the gamblers out there, shorting the S&P or Composite with stops just above their highs would be a gamblin move perhaps worth taking.  But it's just that at this point......a gamble.

I've been having computer problems lately and have been working long days on a big project so I probably won't be back unless something significant happens in the market the rest of the week.  But I'll be back to normal posting next week.



Gest said...

I think there is something wrong with the posted volume data. I do not know where you take them from, but how come NYSE volume is smaller than the S&P 500 volume. Isn't NYSE has about 3000 stocks traded and S&P 500 only 500 most of which are traded on NYSE??? From my personal calculations S&P 500 you show is close to the be correct, yet, NYSE volume should be above 3B

PrincipleAnalysis_Blogspot_Com said...

If the NYSE hit 3 billion shares in a day it would hit the newspapers. It usually trades around 1 billion shares....but not even close to 3 billion.

John said...

You are wrong.
Go to the nyse.com.
in the right hand menu select NYSE
In the drop down menu select "Broker Volume"
You will see the following for today:
Total NYSE Shares traded: 3,490,208,716

How come NYSE data confirms what I mentioned. 800M for NYSE is wrong!!!
NYSE VOLUME CANNOT BE LESS THAN S&P 500 VOLUME. Most of the S&P 500 stocks are traded on NYSE!!!

You may continue use what you are using, yet, I do not trust your volume sources.

PrincipleAnalysis_Blogspot_Com said...

You are confusing the NYSE with the NYSE's COMPOSITE. The COMPOSITE traded 3.7 billion shares yesterday, but the NYSE's volume was only 829 million. The COMPOSITE's volume will always be higher because it includes the volume of other markets/exchanges that trades those stocks as well, while the NYSE only accounts for what their exchange processes.

John said...

I see. You are paying attention to the volume that is traded on the NYSE floor and you disregard NYSE volumes traded through the brokerage houses (Morgan Stanley, Goldman Sachs, Merrill Lynch, etc) and electronic trading. With latest NYSE Euronext announcement that they are redesigning their electronic trading with purpose to move most of the trading there, I think you are using dying data. The fact that NYSE composite volume is 3 times higher than NYSE volume you use suggests that with time the difference will be even higher.

You like NYSE volume and I wish you best luck. I prefer NYSE Composite. After NYSE acquired AMEX and Nasdaq acquired Philadelphia stock exchange there are only two main player: NYSE and Nasdaq. The rest of exchanges do not have high volumes.