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Stuck in a Rut...Again!

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Despite reasonably good results from CSCO's earnings report last night, the broad market just can't seem to get much traction in either direction. While volume is rather respectable as we exit the lunch-time lull, with the NASDAQ sporting just over 1.1 billion shares and the NYSE just over 800 million, it is hard to make a case for either the bulls or the bear holding a measurable advantage. The ratio of advancing to declining volume reflects this picture as well, with Advancing volume holding a slight (53:49) edge over Declining volume on the NYSE. Conversely, Declining volume on the NASDAQ is gaining some traction against Advancing volume, with the ratio currently 66:41.

After yesterday's close at 8588, the DOW has traded in a 106 point range so far today, currently sitting on a meager 15 point gain at 8603. The NASDAQ Composite is looking a bit weaker, currently down 6 points at 1517 after being rejected at the critical 1525 resistance level. While both indices are looking a bit top-heavy here, there certainly isn't an overabundance of selling pressure. In fact that seems to be the theme levitating the market. It isn't that there is any strong buying presence, just that the bears don't seem to be in an aggressive mood -- at least not yet.

I find the action in the VIX to be particularly interesting of late, as it has definitely seen a change in its behavior. It wasn't that long ago that each day in the market (whether up or down) resulted in new multi-month lows for the VIX. Not this week. Instead of continuing to fall as the market trudges to new highs, the VIX is finding a firm floor near 23. This is actually constructive, as it indicates that market participants are not becoming more complacent as the market rises, meaning that there is still a "wall of worry" to climb, even if it is a low one.

There are a few key sectors that I've got my eye on as we enter the afternoon session. Most important to the sustainability of the broad market rally is the KBW Banking index (BKX.X). It is commonly accepted that any broad market rally must have the participation of the Financials to be sustainable, and I take it as very encouraging that the BKX has moved above the $800 resistance level and is steadfastly holding its ground. Look for support near $800 on the next pullback to confirm that old resistance has become new-found support.

In the technology arena, the Semiconductor (SOX.X) and Software (GSO.X) sectors are doing battle with some key resistance levels that will likely determine whether the NASDAQ Composite is able to decisively break through the 1525 resistance. The SOX (currently 348.46) has been dancing around the 350 resistance level and needs to move above that level and then find support there to support the current NASDAQ rally. As the largest sub-sector in the NASDAQ, the GSO index will be key in either helping or thwarting the bulls' attempt at a solid Technology breakout. Key resistance for the index is currently 120, and as we can see with the GSO trading at 118.00, there isn't yet enough conviction to get the job done.

Although the range is steadily moving higher, the market continues to be in a trading range, with neither breakouts or breakdowns from the range being able to garner enough attention to sustain the move. That continues to make buying support and selling resistance the best approach over the near term.

Mark Phillips

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