The NASDAQ broke out to new recovery highs yesterday and did so with rather convincing price action. Volume, unfortunately, was another story. There was little participation in the move. While we feel confident in asserting it is because of the time of year we caution against making an allowance for this type of questionable behavior. Our experience is that volume shows up when it feels compelled to do so no matter how many people are on vacation.
If there was any day during this holiday period where we would expect higher volume it would have been Monday. There are only two full trading days remaining this week and each successive day is likely to see progressively less volume as we get closer to Christmas. As for next week you are more likely to get a pulse on a 106 year old man than in the market.
Unless volume makes an appearance we believe you should trade this new rally leg with caution. What does caution mean? Should you cut and run at every hint of an intraday correction. No. But you should likely approach this move as a swing trader would, looking to take profits after a measured move out of a base or at a sign of exhaustion. Remember, though, that this is a bullish time of year and it appears good profits can be made in the closing days of 2009.
We have said for weeks that we were looking for a final market burst higher before a correction would take hold. Today’s move validates our thesis. New highs on light volume in an extended rally could well signal the first intermediate term correction of the bull market might begin next month.
But for now there’s sufficient rum in the market egg nog to make the holiday season that much brighter.
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