If The Market Is To Go Higher, We’ll Need This Important Ingredient…

  • August 30, 2004
  • Gary Kaltbaum
As I anticipated, the
market continues to bounce. BUT…I am seeing just as many
negatives as positives at this point. Do not ignore either.

 

Let’s start with the negative and end on a
positive note.

 

It’s negative that this whole move has been
occurring on declining volume. In fact, Friday’s volume takes us back into
1998-type volume. I am trying not to be too negative about this. After all,
this is the summer. After all, there is another convention around the corner.
After all, there is worry of terrorism. BUT…why was there heavier volume
when the market dropped? I am not saying volume wont just show up…and to the
upside. I am just saying that light volume moves are negative…AND RECENT
VOLUME HAS BEEN A JOKE.

 

The percentage of stocks in good technical shape,
while improving, is still way below bullish readings. The same goes for
groups.

 

Margin debt is contracting…and badly. I have
pointed out to you on many occasions the direct correlation between expanding
margin debt and rising markets.

 

While more names are showing up on my screens for
buying, there remains a clear lack of leadership in the market.

 

On the positive front:

 

As I stated, more names are showing up in quality
bases and some are even breaking out. The problem though is breakouts are
occurring on light volume.

 

The DOW and S&P have broken through their
respective 50 day averages. The real key will be breaking above the
longer-term 200 day averages…which are just a stone’s throw away.

 

FINANCIALS have been acting better. This will be
an important ingredient that must continue of the market is to go higher.

 

All in all, a mixed bag. The best thing to do is
exactly what I have told you to do…probe. If things continue to
work…terrific. If things start to fail…back off. I have heard everything
from the market is going up 15% by the end of the year to the action is like
1987. Pay no attention. We have proved time and time again that you do not
need to predict anything.  Just let the day to day action in the market be
your guide. When volume shows up, whichever way the market goes with it, we
will go with it…and we should not be so worried about being a little
late. If there is another leg up, stocks will first have to repair the damage
that has occurred this year before heading higher. Maybe that’s what’s going
on right now. 

 

Gary Kaltbaum