MARKET CONTINUES LOW-VOLUME BOUNCE -- EMERGING MARKET ISHARES BOUNCE TO 50-DAY LINE -- THAT'S AN IMPORTANT TEST OF RALLY'S STRENGTH

NOT A VERY IMPRESSIVE BOUNCE ... The market continued its low-volume bounce today. Light volume during a price bounce betrays a lack of bullish enthusiasm and doesn't inspire much confidence that the current bounce is anything more than a reflex rally from an oversold condition. The market also remains well within the boundaries for a normal oversold bounce. Chart 1 shows the S&P 500 SPDRs having retraced 38% of its recent downturn. A more impressive bounce would take it to the 50% retracement level near 142. The 14-day RSI line is still rising from an oversold reading at 30. The 50 level had acted as support during the market's rally (green line). It may now act as resistance on the market bounce (red line). The Nasdaq fared even worse. Chart 2 shows the Nasdaq Composite continuing to meet resistance along the 2400 level. Previous support levels usually become new resistance levels.

Chart 1

Chart 2

HOURLY BARS SHOW LACK OF UPSIDE VOLUME ... Chart 3 uses hourly price bars to put the SPY bounce under a microscope. If you compare the volume bars to the price bars, you'll notice that the red bars (downside volume) are more prominent than the green bars (upside volume). A more telling comparison is the solid black line ovelaid on the hourly bars. It's the On Balance Volume (OBV) line for the hourly bars. It seems clear that the OBV line isn't rising with the price bars. That lack of upside confirmation undermines the staying power of the price bounce. The hourly bars also show overhead resistance at 141.98. That potential price barrier also corresponds with a 50% bounce.

Chart 3

BONDS CONSOLIDATE WHILE YEN PULLS BACK ... With stocks bouncing, it's expected that bond prices will pull back a bit. Chart 4 shows, however, that the 7-10 Year T-Bond iShares (IEF) have been consolidating in a "pennant" formation. That bullish pattern suggests that bond bulls aren't ready to concede their recent gains. Chart 5 shows the Japanese yen pulling back from a short-term overbought condition. It's retesting its 200-day line versus the U.S. Dollar. The pullback in the yen has eased some concerns about the end of the "carry trade". I think it's too soon to call for an end to the yen rally. A bounce in emerging markets helped the U.S. market rally today (along with other developed markets). Chart 6 shows, however, that the bounce in the Emerging Market iShares (EEM) came on light volume. The EEM is also up against potential resistance at its 50-day average. That's an important test. All of these intermarket retracements are perfectly normal. Unfortunately, the retracements aren't enough to determine if the stock market slide is over (which I doubt), or if it's just in a "dead cat" bounce. With apologies to my two cats, I lean toward the latter view.

Chart 4

Chart 5

Chart 6