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All Is Well (?) July 2, 2011

Posted by Tom in Thoughts.
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Well, that was an exciting week.  From the market data and TV commentary, “all is well” . . . we’ve “solved” the Greek debt crisis and things are back to normal.

While it’s true that the markets have rebounded quickly & significantly, I have an uneasy feeling about this rally.  It all seems to much – to quick.  The ‘risk on” trade is back, that is small and mid cap indexes are leading this rally, and overall breath of the rally is good.  But I just feel uneasy about the volume . . . it doesn’t confirm this rally very well.  Note the chart of the S&P 500 index below:

I call attention to the two big volume bars that are circled in red.  They correspond to the two down bars pointed to by the red arrows; heavy selling on down bars.  To the right of that is the magnificent rally but notice that the volume is just “OK”, not strong, but not weak.  I’d feel much better about the strength of this rally if the volume in those rally bars were higher.  Now then, we can rationalize it by saying it was before a holiday, etc. but I’m having a hard time with that logic.

In the mean time, money was flowing back into stocks.  33% of the S&P 1500 stocks were in Accumulation, 43% neutral and 23% in distribution.  87% were directionally increasing in Accumulation.  These are good signs.  But before I get too Bullish on this market I’d like to see some continuation of the rally into next week, and I’d like to see more participation in the volume as well.

Take Care and have a good 4th of July weekend.

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