Another Pullback On Lower Volume Is Always Nice To See; Leading Indexes Outperform The Market For Second Day In-A-Row

April 28, 2009

A not too good-looking though wise enough man once wrote: “The strength of any rally shouldn’t be gauged solely by the rally itself but by what happens when the market pulls back. Is it a rational, orderly pullback on subdued volume or an ugly dumping of stock that ruins all the promising bases setting up out there? A pullback should be a welcome sight as it will reveal the market’s true colors.” For the life of me, I can’t remember this guy’s name, but, boy, does he sound like he knows what he’s talking about! Well, the market’s been showing exactly what it’s made of this week. Despite all the hysterics on the boob tube about some porcine influenza and bank “stress tests,” the market has been pulling back on quiet volume and yawning a rather dismissive yawn at it all. All while most leading stocks have held up and bases continue to, well, base.

While New Highs haven’t exactly set the world on fire, they have outpaced New Lows for the last nine sessions. Let’s take what we can get, all right? Besides, quite a few leaders continue to hang around their 52-week highs. I also noticed the Put/Call ticked up to .91, according to Investor’s Business Daily. That people are getting more negative and bearish (or bearisher, if you’re Market Speculator) could very well be bullish. These tidbits along with the fact that my nightly scans continue to present me with intriguing set-ups tells me that we may not all be going to hell in a hand basket.

This could, of course, all change on a dime. That will always and forever be the caveat. This is the stock market, after all. Care for an example? IBD’s top-ranked industry group is Retail-Restaurants. Well, BWLD and PNRA had a tough after-hours, to say the least. Both were down around 10%. How will this play during today’s session? We’ll see. It’d be nice to see morning weakness then support. Also, I don’t like seeing BIDU doing what it did. It hits that November high and gets rejected on big volume like that? Come on.

So you see there is always plenty to worry about. Something I’ve learned: if you’re feeling comfortable and sure as a trader, then you’re not doing your job. We get paid to be uncomfortable, so to speak. So the market is acting well thus far but be careful. If it isn’t one thing it’s another, as they say.

“Hurry up and wait,” is what they tell you in the army. Well, so it is in the market. We’re in a trading range at the moment and, naturally, time will tell how it resolves itself. That being said, the market will decide when that happens. I can’t say it enough, however: have a plan. Be flexible. Be prepared. Most of all, takes your cues from the market. Ignore the “news” and repeat after me: “price and volume”…”price and volume”….

John “Author Ego” Ward
BigWaveTrading.com analyst

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