Volume for the last few days on the market in almost every index has been very light, but is this something that we should be concerned about? Well if you go back 5 or more years and look at the same time frame, it shrinks drastically this time of year almost every year. I do not think it is of any concern, but if it doesn’t return to average or better by the end of the first trading week, then we might have an issue. What is concerning is that the S&P 500, are main indicator for the market fired off it’s first RED flag to close the year. Remember we need two in a row follow by a red flag into the 11:30 – 12pm hour of the third day in order to call for a reversal. Plus all the other indexes in the order of priority have to fire the same warnings. Just in case I have not mentioned it in the past, my order of priority is S&P500, $DWCPF, Comp, and the DJI. This will almost all the times give us a great heads up to get in or get out. We never try to hit the top or bottom, but get the meat of the move out of the middle. So looking back at the S&P, we have a very nice uptrend line in solid red and we are quite a bit above that, so a pull back might be in the making. The RSI is saying we are overbought, which means a pullback might be in the cards, might being the key word. Lastly, the MACD at the bottom of the chart is starting to rollover. So there are lots of signs just in this chart by itself that is saying be careful and watchful.
What are the other indexes saying?
In the order of priority, the $DWCPF or Small Cap is almost Identical with the S$P500 and that is are first agreement with the warning. We all of them to agree before we start pulling money from the market or reversing are trading style long or short. The COMP or NASDAQ not only agrees with the S&P but is one day ahead in that it has already fired its second daily warning that a trend reversal is emanate. The last indicator and the one I do not listen to often is the DOW30 or DJI. The Dow, as with the NASDAQ, is in total agreement with the S&P and all of these indicators cannot be ignored.
Conclusion: With most of the traders on vacation and away from the market, you can only expect things to slow down. But you cannot ignore the indicators either. So, the first two trading days of the new year are going to be very important. We need the volume to return and prices to go up to cancel the warning flags. You also have to know that last Thursday and Friday were the last days to sell to pad your portfolio as a mutual fund manager. It also allows them to pass the tax burden to the customer, so the selling in the last hours did not surprise me at all. So for now it is a waiting game and no move will be made until at least Tuesday, January 4th, 2011.
Happy New Year and may 2011 be a prosperous one for all.
TSP distribution: G-fund 20%, C-fund 40%, S-fund 40%
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