| Gar's Market Blog
Outlook for Monday-Tues
( 22-23 February 2010 )
There
is an unusual phenomenon occurring
in the market, one that I have
only seen twice before during
the last 11 years. This phenomenon
is an endless, persistent, and
relentless stream of buying,
every day, regardless of any
condition, news, or logic. The
problem? This slow drift upwards
is occurring on anemic volume.
On Thursday, volume was running
at levels not seen since the
1/2-session day on Christmas
Eve. Friday's volume was nearly
as bad, except Friday was option
expiration, which is often a
higher volume day. Even so,
volume ran 50% below normal
most of the day, with a giant
surge at the close (options
action).
What
this all means is not entirely
clear, but it is well know in
trading circles that low volume
upside is never a good sign.
If nothing else, it means there
isn't any true buying interest,
but rather, a low selling interest.
Some even believe that upside
(with anemic volume) is destined
for near-term failure.
What's
even more troubling is that
the market volume seems to only
increase when there is downside.
Our last downturn (on February
4th) was the last time I saw
above-average volume. Low
volume upside vs. high volume
downside---it doesn't take a
genious to figure out what side
of the trade the big money is
on. The question is: How do
you trade this situation?
Follow
the Money
The
only way I know to trade an
environment that has no volume
conviction is to look for stocks
that DO. If you use StockVision,
select any of the screens that
show high-action upside,
or even breakouts (since a breakout,
by definition, includes above-average
volume). Not only does this
work well during otherwise poor
conditions, the big-action plays
are less risky than the not-so-big
counterparts. High volume means
high interest amongst traders.
There
are a few caveats, however.
First, make sure the market
is going in the same direction
as your trade. If you try to
ride a stock higher against
a falling market, your trade
will fail more often than not.
Most stocks follow the market's
lead, and your high-volume choice
is no exception.
Second,
make sure the stock is getting
persistent volume---as opposed
to one giant surge. Quite often,
there will be a big spike near
the open, only for the volume
to decay. What you want to see
is persistent, above-normal
spikes in volume in almost every
bar for at least 20 to 30 minutes.
Third, avoid
getting in too early. It is
not uncommon for a stock to
gap up at the open, only to
decay well off of its opening
high. If you jump in too soon,
you might get stuck holding
a loser. But if you follow the
rule above (to only play consistent
volume), you will automatically
avoid getting in too soon.
Outlook
for Monday
The
most likely scenario for Monday
is low volume, sideways meandering
for most of the day. That forecast
is not based on anything technical
other than expecting more of
the same. The market needs a
catalyst to begin moving in
earnest, and for volume to pick
up, but at this very moment,
I know of no such event that
can wake everyone up.
The
one wild card is Asia, as China
was closed all of last week
due to the Chinese New Year.
Overnight action in Asia might
spark something here, in either
direction, but that remains
to be seen.
The
default mode will be more of
the same---low volume meandering,
with a bias to the upside.
Sector
Watch
As it has
been for many months, the US
dollar will dictate sector roation.
Should the dollar begin to fall,
look to Commodities and Precious
Metals to rally in earnest.
Should the dollar gain strength,
watch small caps, particularly
technology, to take the lead---even
if such a lead is "less
negative" if the market
tanks from the rising of the
dollar.
|
Now
supports
both
US
and
UK
stocks!
