Market Overview: Volume And Conviction Both Light

We've been spoiled in 2013, as a down week like this (the worst since June) feels "terrible" when in most years it would just be any other week of the year. Intraday the action has been random and choppy - with a lot of gap ups both up and down and reversals later in the day. Volume is very light and so seems to be conviction. For the day the S&P 500 fell 0.36% and the NASDAQ 0.25%. Losses were modest at the index level for the week with the S&P 500 down 1.07% and the NASDAQ 0.8% but the positive action was very specific in certain niches. And when stocks sold off this week they did so quite substantially.

Essentially the indexes are now flat over the past month or so after that sharp rally off the June lows. They have come a long way since the beginning of the year and we cannot expect a constant movement up. But in the meantime we have to guard against a significant drop as well. Right now it's more of a "yellow light" area - some warning signals but as we've seen all year these can reverse in a moment's notice. The S&P 500 is particularly important here - you can see the major trend support line that connects the lows of 2013 has now been touched 3 days in a row. So far it has held. If it breaks, it could mark a significant change.

Right now the NASDAQ looks like the better index as it has only fallen back to its 10 day moving average and has not come close to testing any major trend line - but of course if the S&P 500 corrects the NASDAQ will go with it.

What is a bit troubling here is some of the major laggards are coming to life. Often that can happen late in a rally's life, as people move onto things that have yet to move up. Part of the explanation this week has been some decent economic data in China as well, as we noted yesterday. But you can see the metals and mining group had a strong day. Specific stocks that had long been laggards such as Cleveland Natural Resources (CLF) exploded higher.


On the flip side, some of our major leaders of the year are stalling - they could just be resting, or it could be the start of something larger - too soon to tell.

One stock that was not in the resources group today that excelled was Zillow (Z) which recently exploded higher on earnings - it continues to roast shorts.

If you are curious about the affect of moving averages, especially longer term ones, you need only look at Apple. Note exactly where it has pulled back from...


On the bearish side of things we have this stat from SentimenTrader:

Trading in leveraged index funds at the Rydex family of funds has once again skewed aggressively to the bullish side. The Leveraged Bull / Bear Ratio has increased to nearly 6, meaning that investors have almost 6 times more assets invested in funds that are leveraged to a market rise than they do in the funds that are leveraged to a market decline. The last time we saw that was prior to the May market peak.

We'll leave it at that until next week - not sure if we will see more volume return to the market but this general malaise has been here for quite a few weeks; we'll see if there are any catalysts can change that.

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