Monday, June 22, 2009

The Market - Volume Watch

No surprise on the sell off today. All last week looked horribly bearish which is why I was selling as I had previously mentioned. We may have a little bounce but I can't see how the next 10 points aren't lower. I would be shocked if we do hit the 880 to 885 level that we bounced off of at least five times back in May. After that it becomes very interesting. I am as bearish as they get in the longer term but I would still not be shocked to see housing prices stabilize in the next couple of monthly updates and the Fed liquidity injections from many months ago to still work there way through the system. All this means the markets may have another bounce to head higher. I am not all in short with the risk of another serious bounce.

For a stronger sell off to occur, volume has to pick up. Last week I had alot of bearish friends who were concerned about the sell off because it was on no volume. That didn't bother me. Bear market rallies die in no volume and to see markets moving down on no volume initially is not unusual. Also when the market sold off, though volume was light, it was heavier than the up days from the previous week. So I didn't see it as that big of a deal. Now to break through 880, volume will have to pick up. Today's close was very interesting. Another day of zero volume until the last 30 minutes when the cash market volume exploded. We finished with 1.4 billion shares traded. That is the most volume in several weeks. You will have that and greater volume to get through 880. If you break that, you are looking at the 840 area. Wednesday, you have the Fed meeting which considering mortgages rates becomes very important. That could be a catalyst for a market bounce since the market seems to be selling the rumor. Once the meeting is done it may be buy the news.

I think volume may be the tell tale sign of whether this sell off picks up steam. Low volume going down on the initial sell off in a bear market rally is not uncommon. It should start picking up if the sell off is to accelerate and continue.

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