After Two Days Of Distribution, Stocks Rally On Lower Volume; Stay Defensive And Cash Heavy.

On the back of oil falling to near-five month lows, stocks gained ground all day long and finished near the top levels of the day.

At the close, the Nasdaq and Dow Jones Industrial Average led to the upside with a .5% gain, the SP 500 gained .4%, and the SP 600 rose .3%. The IBD 100 lagged the market again losing .5%.

Volume was lower on both the NYSE and the Nasdaq, as traders took an early Friday leave, once again. The lower volume shows that the market is still not under heavy accumulation by big funds. Breadth was even on the Nasdaq and positive on the NYSE by a 3-to-2 margin.

Today's rally, coming off of back-to-back distribution days, does nothing to convince me that the most likely trend at this point is down.

For the post-holiday shortened week, it wasn't a good one for the market. The SP 600 lost 1.5%, the Nasdaq lost 1.2%, the SP 500 fell .9%, and the Dow Jones Industrial Average fell .6%. Worse off, leading stocks sucked it hard this week also, with the IBD 100 losing 2.3%.

With the IBD 100 losing 2.3% this week--which was much worse than the market--it continues to lag the market to the upside and lead it to the downside. In true strong bull markets, leading stocks outperform on the upside and lag to the downside. Right now that is not happening because old leaders are being purged making room for future leaders. When this happens, this index lags. When this index lags you know the only proper play is no play.

The good news this week? Oil fell 4.2%. That means drivers can expect to start seeing some major relief at the pump. The bad news this week? Oil fell 4.2%. This means that the economy is slowing. The fact that Gold also fell 2.4% and that those stocks cracked in May also makes it seem highly likely that the economy is in fact slowing.

That means that the leading stocks of the rally from 2003 are probably done after all that topping action in May. The good news from that means that those stocks can be taken off the leading stock list and new stocks can come and replace those as the market starts to find its legs from this possible selloff. Those stocks could possibly be more tech based; at least that would make for a really strong rally. The other good news is that their are a lot of nice looking short candidates in the Oil sector.

All I have talked about the last five to six post is still relevant to the current situation now. We are just spinning are wheels waiting for some real momentum to either the upside or downside to reassert itself. When the trend comes into a more clear situation then more analysis can be done. Until then the same things that I have been bringing up about why this market is probably exhausted to the upside still reigns true. There is simply nothing new I can add that has not been discussed many time before. Please read the last five post, if you are not sure why I am more bearish than bullish.

It's the most horrible time of the year, as far as stocks are concerned. Stay cautious and remember cash is king in this market environment. Forget trading on the short term if you can't even make money investing in the long term. It is a fools game, to the inexperienced!

Aloha and I will see you at Investors Paradise.

New Swing Longs: VARI PLM

New Swing Shorts: REP WCN CX ARLP ASA SU

Longs Outperforming (low vol non-IBD excluded): CVO-133 OMRI-30 DA-32 IHS-47 CTCI-64 VLG-44 AKAM-157 GROW PRFT RAH CTCM BEAS IIVI TTEC BMC ABCB ISYS WEBX CHINA NEU MO VRGY BMR DGX DJO ACGL PSPT IDXX HSR IMKTA SEIC CGX DKS ORB BEBE SZE HCSG NGPS GISX EGN ALY VTIV ZTM AIQ MNG ABMD ICI RMR

Shorts Outperforming: SWC-40 ZRAN-29 DDE-22 IYT PDCO WTI CPF HYDL USU GSF CCO CPE CFC KMP NGS IXC TDW

Completely Cover Shorts: KNOT

Stocks On Radar Screen: TRLG HURN PCCC LWAY HPQ EXXA SAB HH PLC GMTC