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Tough to find conviction

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So far this week, it has been tough to find any type of "real conviction" from the market. This makes sense in the scope of things given the half-day trading on Monday, then no trading on Tuesday. Many market participants simply aren't around right now, opting to get the biggest bang while burning some vacation time. You know... take 4 days off starting Saturday December 22nd and don't come back Wednesday January 2nd. Burn 4 days of vacation and actually get a nice 11 day's straight with family and friends.

I get the feeling that stocks want to go higher, but there just aren't enough market participants around to make the decisive buy/sell decisions needed to get some type of conviction showing up in the market.

Dow Industrial Average Chart -

Yesterday we mentioned that the Dow Industrials (INDU) had broken above its 200-day MA and today's action is bullish compared to the test of this moving average if compared to the December 6th test, when the Dow saw selling for several sessions before the latest rally back. If all market participants were casting votes today instead of having a leisurely brunch with family and friends, I think we'd be having some good action. Right now, I think that action may not come until next week, after the new year festivities.

The Dow Industrials should now be finding some good technical support at/near the $9,000 level. We've seen in some recent sector analysis that the rising 50-day MA has been helped the Biotech Index (BTK.X) find support on its past pullback near $555 (now trading $590) and the Semiconductor Index (SOX.X) found support just recently at its 50-day MA of $507 (now trading $531). Recent action in both is a sign that buyers are beginning to get a little more comfortable with "buying some dips."

I still feel there's some downside risk near-term in the Semiconductor's, but according to Dorsey/Wright and Associates, the bullish % for this group is not at 58%, having been as high as 78% in early December. In essence, quite a bit of risk has been reduced in the sector from such an overbought level (overbought is most often found above 70%). Yet some "lack of conviction" or lingering uncertainty remains as the SOX.X now trades smack-dab between its 50-day MA and still trending lower 200-day MA at $555. It's a rather tough bullish trader here, but a bull with some conviction can be buying, but following with a firm stop or looking for further weakness should the SOX.X break below the $500 level.

Jeff Bailey
Senior Market Technician
Option Investor

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