Murky Prospects for a January Rally

Institutional Buying/Selling Index StockTiming.com

Another negative sign is that the institutional buying/selling index, which measures the spread institutional buying and selling on a given day, is showing that buying has sharply decreased. However, one positive is that the selling has decreased. For the market to move higher, institutions will have to start buying again and soon, or we will likely see another test of the lows.

I have also been pointing out that we have no new leadership in the market, which is something that has to change to jump-start a substantial rally. This could change in the near future if the lead/lag indicators can break out into positive territory. The lead/lag indicator chart, which calculates the difference between the very strong to very weak daily number of stocks, is in an uptrend and showing a small plus reading for the first time since last August.

It will be important for the indicator to rise above the zero line; that would be a positive change balance and would support a move higher in the indices.

Lead-Lag Indicator StockTiming.com

The institutional money stream at the bottom of the chart has risen slightly above resistance, but this is a very weak showing and could reverse at any time.

The bottom line is that we need to see the major indices like the S&P 500 break out of their consolidation patterns on heavy volume. For the S&P 500, a break above 920 would confirm an intermediate-term trend change. However, we should have seen a breakout as a price neared the apex of the ascending triangle, but that didn't happen and it has drifted out of that pattern over the last week.

S&P 500 TC2000

If you have a small probing position of 5% to 10% in the market, I would continue to hold unless we see a break below 850, where I would start to reevaluate the position. A break below 818 would send me straight back to 100% cash. On a break to the upside, you could add another small position and then be more aggressive once we see a successful test of the current resistance, which should then become solid support.

Finally, if you haven't already, send me an email for my in-depth investment outlook letter for 2009 that is available to readers at no charge. It will be available no later than the second week in January. I will highlight opportunities, risks, possible leading sectors and investment strategies for the coming year.

---

At time of publication, Manning had no positions in the stocks mentioned, although holdings can change at any time.

Mark Manning, AAMS, is an Accredited Asset Management Specialist and Registered Investment Advisor with Butler, Wick & Co., where he specializes in wealth management. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Manning appreciates your feedback; click here to send him an email.