Pump Up The Volume!

• Posted by Joe Fahmy
• on December 3rd, 2009

Since the beginning of November, almost every trading day has occurred on below average volume. Why does this trouble me? Because it shows very little conviction from the big institutions. As a result, we've been stuck in this 3-month trading range between 2000-2200 on the NASDAQ Composite. There are a few possible scenarios from here:

1) The low volume could just be a consolidation period before we head higher. Stocks and indexes don't simply go up forever. They need to consolidate, especially after hefty gains. Since the March 2009 bottom, the NASDAQ has gained close to +70%. Maybe this trading range is a pause before we move higher.

2) We could be forming a near-term top. The NASDAQ seems to have strong resistance near 2200 and leadership is definitely narrowing.

3) The trading range could continue for a while, which means we should sell stocks into strength and buy them back near logical support areas such as 20-day or 10-week moving averages.

What's my opinion? Keep an open mind and pay attention to your stocks! If stocks can build bases and breakout on strong volume, I would feel more confident about the market. If the leadership continues to "thin-out," and we break down on heavy volume, I would raise cash and turn more cautious. Again, VOLUME is the key! As Jesse Livermore says: "Markets are never wrong, opinions often are." That's why I would rather pay attention to the market than worry about predictions.

One note about my "Trading China Momentum Stocks" blog from yesterday: I realize that many of the names could go higher, however, don't get caught up in the euphoria. In other words, it's not normal for stocks to go up 10-30% in one day! My feeling is there's a great deal of speculation in these stocks and a lot of "easy money" has been made recently. Again, there is nothing wrong with taking advantage of momentum, I'm just trying to remind everyone to keep a level head. Take profits into strength and use stops!

Stocks on my watch list that are holding up well: $RAX $FFIV $CYD $HMIN $GFA $CAAS $HGSI

Follow me on Twitter @jfahmy

Tickers: CAAS, CYD, FFIV, GFA, HGSI, HMIN, Jesse Livermore, RAX

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