Where’s the Volume? Stocks Rally on Mixed Volume

Wednesday, June 2, 2010 
Stock Market Commentary:

The major averages rallied smartly on Wednesday after a stronger than expected report from the ailing housing sector was released. Volume totals in the US markets were reported mixed compared to Tuesday’s totals; higher on the Nasdaq and lower on the NYSE. Advancers trumped decliners by over a 4-to-1 ratio on the NYSE and about a 4-to-1 ratio on the Nasdaq exchange. There were only 10 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, higher than the 5 issues that appeared on the prior session. New 52-week highs outnumbered new 52-week lows on the NYSE but trailed new highs on the Nasdaq exchange.

Wednesday’s Headlines- Yen Falls, Buffett Testifies, and Pending Home Sales Rise:

Overnight, the Japanese Prime Minister Yukio Hatoyama resigned from office ahead of the forthcoming election. His surprise resignation sent the yen plunging against 15 major currencies. In the US, pending home sales soared to their highest level since October as buyers took advantage of the tax credit. Elsewhere, Bank of America’s (BAC) Chief Executive Officer, Brian Moynihan, reassured investors when he said that he sees “more than hopeful signs” on loan demand. In other news, Billionaire investor, Warren Buffett, spent part of his day testifying before the Financial Crisis Inquiry Committee (FCIC) and defended the credit agencies.

Market Action- In A Correction:

Wednesday marked day 1 of a new rally attempt for the tech-heavy Nasdaq composite. It is important to note that the window is now open for a proper FTD to emerge for the benchmark S&P 500 and the Dow Jones Industrial Average. Even though, both indexes enjoyed strong gains today, volume, a critical indicator of institutional sponsorship, was lighter than the prior day’s level which prevented a proper FTD from emerging. Over the past few weeks, we have seen a handful of large light volume rallies in the major averages that would fail within a few days.  

Remember, in order for a proper FTD to emerge, we need to see three events occur anytime after Day 4 of a new rally attempt: a gain of at least +1.7% in one of the major averages, volume must be heavier than the prior session, and a new batch of high ranked leaders must trigger fresh technical buy signals. What does all of this mean for investors? Simple, the market remains in a correction which reiterates the importance of adopting a strong defense stance until a new rally is confirmed. Trade accordingly.

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