Stocks opened higher yesterday, dipped just before the Fed meeting, and then regained the losses late in the afternoon. The only big event of the day was that the Fed still has enough ammunition to counter further stalling of the economy. But Chairman Bernanke did not say QE3 was a possibility.
Bernanke lowered expectations for growth in 2011 and 2012, and raised the long-term unemployment rate forecast to 5.6% from 5.4%. It seems that none of the news was especially good, but at least the situation inEuropewas off of the front page, and as a result, stocks staged a low-volume recovery following a 5% drop in the two prior sessions.
The Dow Jones Industrial Average rose 1.53%, the S&P 500 gained 1.61%, and the Nasdaq was up 1.27%. The NYSE traded 956 million shares and the Nasdaq crossed 544 million. Advancers were ahead of decliners by about 5-to-1.
There is one daily report that influences technicians more than any other, and that is volume. In fact, many of the old and famous chartists said that they depended more upon the interpretation of volume than any other indicator. That is why I include it in every Daily Market Outlook.
This week’s volume told us much about the quality of yesterday’s advance and the prior two days of selling. The two down days not only had much higher overall volume than yesterday’s recovery, but Monday’s decline was a 12-to-1 down day, and Tuesday’s a 14-to-1 down day (NYSE ratio of sellers to buyers).
The accepted interpretation of such negatively skewed numbers is that big institutions accounted for most of the sales. When the volume dropped on Wednesday’s rebound, the conclusion is that institutions were mostly absent — both bearish indicators.
But the bulls do have something going for them: Tuesday’s decline stopped almost precisely at the lower range of support. And yesterday, all three major indices bounced clear of the support zone.
Nevertheless the overall picture is bearish. The VIX is still above 30 and in the danger zone, and even though it closed under its 50-day moving average (blue line), its stochastic tells us that the odds are in favor of a move lower for stocks due to the inverse relationship of this indicator.
And with volume clearly in the bears’ camp and three overhanging major resistance lines intact (neckline, 200-day moving average [solid red line], and the bearish resistance line [solid black line]), the trend is down.
My advice to traders: The high volatility can be used to your advantage. (Find out how.) Take smaller, easily achieved gains rather than holding out for the big gain since that can be easily wiped out by a one-day rally.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
