Another brief move above S&P 1100 was quickly rejected again
this morning, with traders sensing this market is running out of steam
at resistance. The eight-day upside romp covered over +7.5% from low to
high, yet volume absolutely evaporated on the advance.
Healthy markets need fuel (volume) in order to continue moving
upward; since October 30th SPY volume has plummeted over 50%. This is
unbelievable -- where is all the institutional demand?
Eventually the feeble upside volume and lack of institutional
sponsorship is going to come back to haunt the Bulls. Just as in the
case with momentum divergences, which we have been pointing out, the
paucity of volume often won’t cause market strength to crack
immediately, but should be a clear warning equities are not on stable
ground.
Oil (USO –3.1%) looks increasingly vulnerable to a large correction;
the US dollar ETF (UUP +1.42%) has seen a huge increase in upside
volume in both the stock and option call contracts; and gold (GLD
–1.30%) is certainly extended, vulnerable to a sharp decline. Put it
all together, and the background is set for equities to move lower.
All that is needed is some downside price action, a few lower highs
and lower lows, violating support levels, unable to hold key moving
averages. Once S&P 1080 is taken out, watch the action around the
50-day MA (1061) to see if institutions step up and support their
positions. If that level doesn’t contain the down-draft, then the early
Nov lows (1029) and the 89-day moving average (1028) will be the next
key support.
As always this commentary is merely a forum for pointing out
possible areas of interest for traders. As we pointed out late last
week and in the closing paragraphs to the Week In Review introduction
this week, until prices actually decline, independent traders leaning
heavily short are asking for trouble. Just because you FEEL the market
is overvalued doesn’t mean it is about to come crashing down.
Make your lists, doing your homework ahead of time so if the
anticipated decline begins, you are prepared to act boldly and
decisively. Otherwise, when the action starts, you will in extremis,
be unable to act at all.
Have a great evening.
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