One Factor That Allows Prices To Trend
The
major indices all made strong move higher today, with the S&P 500 up
1.6%, and the NASDAQ up 2.1%. Breadth was good, but volume was once again
disappointing. The biggest reason I look at volume patterns when evaluating the
health of the market is it is one way to measure conviction.
In the dictionary, conviction
is defined as “A fixed or strong belief.â€Â Conviction is one factor that allows
prices to trend. If large institutions develop a belief that the market will
move in one direction or the other, they will position themselves to take
advantage of that move. In order for a bull move to succeed, buyers need to
have conviction. In order for a bear move to succeed, sellers must have
conviction. It is very difficult for prices to trend strongly unless there are
some large players willing to step in at higher and higher (or lower and lower)
prices. Volume is one way of measuring conviction and thus far, it is still
lacking.
Other ways of measuring the conviction of a move are by looking at breadth, the
action of leading stocks, and correlated markets. These three areas looked
quite strong today. With regards to leading stocks, I have not noticed a day in
which leading stock action was this strong in several months. There were a good
number of stocks that broke out of basing patterns and went on to post solid
gains and finish at or near their highs for the day. Also, for many of these
individual stocks, volume was strong.
SHFL is one example. MSA is another.
RCRC is a third.Â
^next^
ZEUS is another example.Â
The list goes on.Â
Intermediate-term traders should spend some time tonight going through Boucher’s
High EPS/RS New High List. I believe it should be quite large and should also
have some significant breakouts on it to monitor. Â While overall volume is still
lacking, the action I saw today goes a long way in making me feel more bullish
towards the market. If the market can manage to post a few up days on strong
volume, then we may really have something. Of course, should several of these
names reverse and fail to hold their breakouts my attitude could change
quickly. For now I would be looking to take advantage of further breakouts like
the ones above. I would also be keeping my eyes out for further evidence of
buying conviction in order to get more aggressive.
Good trading,
Rob