Markets continue to suffer from lack of volume

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Much to do about nothing today as stocks slide on lower volume. It came as no surprise to me to see the lack of pretty much anything in the market today. The most important thing to remember here is that we are seeing a rally that has declining volume. We are past day 7 of an attempted rally therefore, really any follow-through that we see here will have a high probability of failure or not producing huge winners. I would expect the same action the rest of the week with Thursday being a possible exception. GDP #s are being released on Thursday as it may kick volume up a bit.

Let’s go look at some charts:

The follow chart is a P&F of the NASDAQ. Take a look at the bearish price formation it is forming. Now, if we can take what volume is doing with the current price action of the NASDAQ we can conclude there is noticeable downside pressure. Do we short? No, we do not but, it tells us that going long will have significant downside risk.

Now, take a look at the S&P 500. First you’ll notice that the price pattern is forming a bullish pattern. Second thing you’ll notice that it is the opposite of what the NASDAQ is currently doing. Let’s bring volume back into the picture. Volume is not confirming the current price movement higher. Although it may not be confirming it, we can still continue to keep moving higher. But, what this means is that the price and volume divergence will come into play at some point. Bottom line, new longs have signficant risk.