Tuesday, March 13, 2007

Buy Dips or Sell Rallies?

The above chart is the S&P 500, with volume, advance/decline of the NYSE, and the advance/decline of the Russell 1000. The sell off a couple weeks back might seem like old news to some, but was it just a one time thing or just a sign of things to come?

This chart shows that the weak rally since that high volume down day has not had much power to it. As the index slowly tries to recover, volume is becoming less and less. This means that the participation in this rally is not enough to sustain too much more on the upside. We need more consolidation or a bigger drop to get more participation on the buy side. The NYSE ADV/DEC has hit the upper end of its range, and there should have been a greater move upward in prices. The down sloping volume shows that confidence isn't there yet.

If we take out the low of 1373.97, look for volume to increase as selling picks up. The next target on the downside is around 1317, which is a significant down move. This should not happen in one day, but if it happens, should take a couple weeks.

Watch the price of oil, it has been going down in recent days, but if it gets back above $60, it could bring back a focus to selling stocks and asking questions later. Even with the down move 2 weeks ago, there is still apathy and not enough fear in the market. Gasoline over $3 is a hidden tax on the economy, so look for that to be talked about in the news. This usually effects retail stocks. How far does the exposure go with the problems with some of the sub-prime lenders? There is also a battle of opinion going on in the bond market on if the fed is going to cut rates or continue to raise them later in the year to cut inflation.

More on that next time....

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