I spent the entire trying day trying to sway myself to the bullish side. But the harder I tried the more I realized it just wasn't going to happen, at least not this week. The technical's just look horrible whether you're looking at the market, leading stocks, or potential leaders. Add possible economic data confirming a recession and the market could have another breakdown.
The market for one has done what was expected, rally from an oversold condition after confirming the bear market. It has done so on summer like volume, very low (it is April!!!!). The two above average volume up days, including the follow through day, were only above average because of takeovers and options expiration.
Leading stocks, there really aren't too many. It's the same names, fertilizers. Oil has a few, but the rest of the group looks like it's getting ready to rollover. Breakouts in the rest of the market have come on weak volume (typically you should see many breakouts on explosive volume). Then for every breakout there seems to be two that fail immediately. The one's that do manage to hold above the pivot have either made no progress (this includes the fertilizers) or have had volume wane significantly as they've moved higher.
Now I tried to give the market the benefit of the doubt with the first two factors since it could take as much as a month before stocks really start moving. But that's where I ran into the next problem, potential leaders setting up. I had a hard time finding some. Most bases were sloppy, lacked volume as they moved closer to their 52 week highs, and the one's that had a chance of making the cut, had declining fundamentals.
This week the market went right back to reacting negatively to bad news after reacting positively two weeks ago. This is important. If we have been in a recession, we still haven't seen the economic data to confirm it. The initial reaction could lead to a severe break in the market. And of course there is always more subprime news risk (overplayed, but still getting reactions)
This all points to this being nothing more then a bull trap in bear market. I believe that within the next two weeks the market will make a decision. I have a strong belief that it will be as soon as this week. After running this analysis I found that a bad week with distribution or a weak rally on low volume would skew this market even more to the bearish side. This market desperately needs volume to the upside or it risks falling apart. If it does, I would not be surprised if the next stop is NASDAQ 2000 or below. Cash is still the best place for now.
I hate being bearish since most of my money is made on the long side, but I just can't argue with the facts right now.