Bears on the Run

The chief Bear is definitely up a tree tonight, but it may be just a house cat that has him there.

Positive earnings news ignited oversold tinder to produce a remarkable session on Wednesday. The Dow, SPX, MID, NYSE, and WLSH all notched record highs, and market internals were of near-centerfold quality. On the Composite, breadth was strong, but an impressive 82 out of every 100 shares traded was a buy, and News Highs outpaced New Lows 439-59. The IBD100 outperformed as well, beating the broader indexes with a 1.9% gain, as a stunning 88 out of 100 stocks moved higher.

The only problem with Wednesday's action was that the market showed mixed volume. On one hand, SPX volume was up 4%, NASDAQ trade was up 9%, and NDX volume accelerated a whopping 19%. But as the NYSE notched a new all-time high, its trading volume fell 5%. The MID hit a new high, but trade slipped 6%, and volume on the S&P600 slid 8%. As the Dow hit its 25th all-time high since October, volume fell a noticeable 10%.

But the real puzzler was the IBD100. While price and breadth were excellent, volume wasn't. Of the 88 stocks that moved higher, just 19 did so on higher volume. As the IBD100 gained 1.9% on Wednesday, 69 of 88 stocks moved up on lower volume. Considering the size of the price move, this is a disconnect. The fact that it's corroborated elsewhere is worth noting as well.

Of course, there's no way of knowing if Wednesday's skimpy trade means anything or not. In the short run, it's doubtful. Oversold conditions and excellent internals clearly point to more upside ahead, and EBAY's earnings are the perfect fuel for the fire. Also, call buying nudged the SMA TOF Ratio back in positive territory, and the NASDAQ's 5-10-20 Indicator is still on a Buy.

However, new index highs on lower volume still creates a question mark. Institutions have been cautious the past 7 sessions, and the bullish enthusiasm wasn't as widespread as it appeared. Heavy volume advances are the perfect remedy for most problems, but until that happens, it's a good idea to keep both feet on the ground. If the Bear figures out that it's just a cat, watch out.

Have a good day, and pay particular attention to the volume.

best

dk



Blue chip volume problems or not, the NASDAQ looks like it wants to move higher.