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Another Low Volume Selloff Consolidates Gains

As you can see on the chart above, we had another low volume selloff day in the market. Some sectors that had moved up the most in the rally were sold pretty hard today, but that is natural. Days like today shake out the weak hands, get them to cash, and then when the rally resumes, they are once again the buyers that push up stock prices.

I don't see anything that makes me question our view that we are headed to the 200-day moving average. It won't be a straight line – never is. We have earnings season here and the economy is just so bad that earnings will not be pretty. However, if companies come out with projections of better times ahead, this will make them buy candidates and push up their stock prices in spite of a bad first quarter.

We are in a backing and filling process where we have to digest the big upward move. I didn't annotate it on the chart (I should have) but you can see we've run into an area of the market where a significant amount of previous activity occurred. You can see the large horizontal grenn/red bar in the middle of the price graph. A lot of people invested money at that point, so they are sellers now that they have gotten back to break even. This is a very normal human reaction and it just takes some time of moving up and down within a range between 790 (the 50-day moving average) and 850 before we break out to move to the 200-day moving average.

As long as there are no exogenous events that cause a news-related pullback (disasters, wars, additional unexpected financial company problems) then we should work through the trading range as we weather earnings season and resume the upward move in our rally.

Mark