Monday, August 06, 2012

Melt-up Monday Ends on a Sour Note as Summer Volume Continues

After coming off of an Economic news invasion last week the market gets a reprieve this week. Monday’s have been tough over the last 9 weeks closing in the red all 9 times. This Monday would be different closing in the green, but well off the highs of the session. The NASDAQ backed off the 3000 level while the S&P 500 reversed from 1400. While these are just psychological levels the sell off at the end of the day was not ideal. We’d like to see the market close strong on heavier volume. At the moment this market appears to be hyper focused on index securities and driven by high frequency trading. Our uptrend continues, but remains very weak with the lack of volume coming into the market. Friday’s market action was solid when you take a look at price action, but falls down when you take into account volume. We can continue to move higher, but there isn’t ANY accumulation in the market. Institutions are not accumulating stock at this time and it is very apparent when you look at volume. Without conviction we remain cash heavy in this market environment as it is difficult to have confidence to get size in any position. Trading with small positions here is key until the market says otherwise. It is quite amazing Mondays have been so dismal, but the market has been able to avoid taking out the lows. Since the last positive close on Monday the market was coming off the June lows, not highs. While it would be fun to speculate the market is about to change its behavior and move lower we will need price to confirm our stance. We have seen this market melt-up on pathetic volume and saved by possible central bank action and it would not surprise me to see another shock come into the system. How can the market rally in a sustained meaningful way when the VIX is sitting around 16? Anything can happen but logic says otherwise. It is very important to keep focused on being disciplined and sticking with your strategy. We are sticking to ours and look forward to when we have better market to operate in. The most important rule remains cut your losses, when you are wrong.

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