We suffered through four 90% panic-type sell-off days in June. Normally that should have been enough to clean out the overhead supply and prepare the base for an impressive rally. But the four 90% decline days were evidently not enough to create a severe oversold condition and not enough to set off an impressive and sustainable rally.
Tuesday saw the fifth triple-digit Dow rally since late-April, and again the rally was disappointing in that upside volume was lacking. Indications of an institutional entrance to the market would be seen with one or two 90% up-days or a string of 80% up-days. So, far, it must be said that the big money and the institutions have been satisfied to sit on the sidelines while they await for even "choicer bargains," meaning lower prices.
Remember, the smart money knows that profits are made in the buying, and that means in buying low. If stocks are not near what the smart money believes are bargains, then they'll wait until the market is low enough to produce the bargains they are waiting for.
As things stand, let's check out the market from a Dow Theory standpoint. We'll start below with the Dow. We see that yesterday's triple-digit rally in the Industrials was not powerful enough to take the Dow above its earlier June high (horizontal blue line.)
Checking its companion Average, we see that the Transports have bettered their earlier June peak and are now actually above their 50-day moving average. The blue histograms at the bottom of the page are in the bullish zone, so the Transports are putting on a good show. But a movement of one Average, unconfirmed by the other, is worthless for prediction purposes and may even be deceptive.
As I've said before, what's needed now is strong upside volume, enough to take the Dow above its June resistance and enough to trigger a real, institutional entrance into the market.
Incidentally, it's really strange how the market can keep us on "pins and needles" just when we're so desirous of some clarity and direction.
