Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Tuesday, July 27, 2010

Declining volume pullback due

I have been charting 12 years and I have never seen a four day up move with declining daily volume on all four days manage to avoid the pullback drop on the fifth. There can always be a first time but the odds say we are at a ctitical point right here. They have forced this market up relentlessly the past week and by doing this they have created a very narrow ascension channel. Normal ascension channels have bigger oscillations through the move creating a taller channel that allows modest pullbacks that simply fall back down to the support of the lower channel line.

The channel they have traded us up in for a week is pencil narrow. While these narrow channels make for powerful, fast rallies that get the attention of the average investor, when day 5 comes and the pullback is upon us, the first little down move, such as todays small nasdaq down move, leaves us hanging on to the lower channel line for dear life. If it slips through the lower line tomorrow morning the shorts will come back in with a vengence and panic could set in. If it doesn't we are entering propped up market territory.

Don't get me wrong a pullback here is healthy and is actually needed for the market to continue on with additional up waves. It's just that wall street has painted itself into a corner by not allowing decent size down oscillations for the past week.
While I am not in any swing trades tonight, I am still in the six short term investing symbols. This goes against every fiber in my body, but I am going to force myself to stay in them, but on paper only. Keeping their ongoing net percentages posted at the lower right will document the investing side of this rally from the first tick and I will stay marked in them no matter what until if and when I call a new down leg beginning in the market.

It will be good for anyone weighing swing trading versus short term investing to watch what happens to these gains in even a modest pullback. The reality is that even short term investing has gone the way of the dinosaurs. I only swing trade and day trade. Buy and hold is dead money. The Dow is at the same place it was at 10 years ago, while inflation has driven the cost of living dramatically higher during these same years.

No need to look for any new trades tonight, its time to sit on the sidelines and watch for a day maybe two.


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