Day three of the current attempt at a rally was a quiet day for stocks. Volume pulled back nicely as well as stocks. The market appeared to get support near the lows of the day and finished above the mid-point of the day, a bullish sign. During attempted rallies you simply do not want to see distribution as it most likely spells trouble for the attempt. So far, we have been able to avoid such selling. Tomorrow will be day four and we’ll be looking for a confirmation that this rally attempt is for real.
While we still have quite a few stocks below their respective fifty day volume averages, but we are seeing pockets of strength. A few nights ago I stressed those who are new to this game not to jump in too early. The warning still stands as we simply do not have the overwhelming strength in a fresh new bull market. If we follow-through it will be a different story, but until then we need to remain patient and take it stock by stock. Jumping the gun by going long only to be shaken out will lose you money and confidence. Be patient, while we have some strength it isn’t overwhelming enough for those new to trading to jump on in.
I have often mentioned and shown the McClellan Oscillator an oversold and overbought indicator. At the moment, the indicator remains in oversold territory. While this may seem like a good sign I remain caution because it uses breadth to determine its levels. Breadth hasn’t been overwhelming on the positive side, but it isn’t enough to end this rally attempt. However, it is another sign to be cautious and avoid over-committing to the long side. However, do not go nuts on the short side either as we can see a follow-through day confirming the attempted rally. Let the market confirm your view before plunging in.
Price action along with volume when taken in the current rally attempt is positive. But, remove the narrow view and a picture of doubt unfolds. We have yet to see a sizeable correction of 10% or more. This run-up since March has only yielded two eight percent corrections. Stay patient and disciplined.
