The market staged a good rally yesterday, at least on a price basis. After opening higher the major averages worked their way up for the rest of the session. In contrast to the trading sessions earlier in the week yesterday the market held its early gains and rallied into the close. All the major averages finished at their intraday trading highs, a good sign. The COMPQ rallied 1.77% while the SPX gained 1.60%. The greatest strength was in the semiconductor stocks as the SOX was higher by 2.19%. The problem yesterday was volume. It was lower across the board and below average on both exchanges. Leading stocks rallied as well with the leaders index gaining 1.67% on the day. The index traded below its short term 9dma support level during the day but rallied above it and closed near its intraday trading highs. The problem here also was volume. It was lower than Thursday and well below average. It was in fact the lowest volume the leaders index has seen in over a month. Just when it looks like the market is headed lower it has a big price rally. The SPX and the DOW both regained their important 50dma’s. The real problem was volume. You do not want to see lower volume on a rally day after weakness. This shows that large institutional players were not in there buying stocks heavily in yesterday’s rally. The kind of higher volume sell offs and weak closes we have seen recently are signs of distribution. Large institutional players are selling stocks. Yesterday’s action would have been great if it were accompanied by strong volume. There was no conviction in yesterday’s rally. We need to see strong price action accompanied by strong volume to give us confidence that the positive action has legs. If we don’t see this type of action soon yesterday’s price moves will likely not last. Jerry
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