Market update July 19, 2011

As I mentioned yesterday, a lower volume hammer was not that strong a signal of start of a sustainable rally but today we got a gap up and the market closed near the highs of the day. Volume on SPY was a bit lower than yesterday, again not supportive of a rally but it was higher on QQQ. S&P futures including the overnight session also printed a bullish engulfing candle and that too on lower volume. So, there is a bit of divergence between the volumes of these 2 indices but one such day doesn't mean anything. Even if we see this situation on a number of days I don't know what to conclude from it. So, for now the path of least resistance is up until there is evidence otherwise.

Previously my opinion was that due to summer time, we might not see a breakout of the overall market from the current trading range before start of September. But considering that a number of leading stocks are forming bases and few have just broken out, it is quite possible that we see a breakout much sooner than start of September.

Disclaimer: No position in SPY, QQQ or ES.