No Fuel for This Rally

The good news from Friday's rally is that we didn't give back Thursday's gains. To that we can add that the market's breadth fared well, at least on the NYSE. (On the Nasdaq, the Comp's flat showing was mirrored in the flat reading of advancing and declining volume.) So the big-picture good news was that we didn't see a reversal of fortune and the statistics were OK. That will probably keep the trading range alive.

But what I would like to show here today is one of the reasons I think this rally will not explode to the upside: a lack in volume. On the Nasdaq, the rally off the April lows was showing decent volume, not only with several days of volume that topped two billion shares, but with the 30-day moving average of Nasdaq volume over two billion. There is an old adage on Wall Street with regard to volume: It takes real buying to push a market higher, but it can fall because of its own weight. That's the same as saying that rallies require fuel, and volume is fuel.

For examples of this, I have chosen two of the biggest names in semiconductor equipment stocks. These stocks have not collapsed recently but have held up reasonably well in the past few months. And if this rally is going to be sustainable, we need these stocks to continue to do reasonably well, not falter. What I see in their charts is exactly the same: good volume coming off the April lows and nothing even close to that on Thursday or Friday last week. That is not the stuff that makes for sustainable rallies.

Applied Materials

In the case of Applied Materials(AMAT Quote - Cramer on AMAT - Stock Picks), we see that in April we regularly had well over 20 million shares trade each day, with some days pushing more than 40 million shares. And from the chart, we can see that Applied Materials hasn't seen even a 20 million-share day in more than a month. Novellus(NVLS Quote - Cramer on NVLS - Stock Picks) is not much different except that the numbers are halved: In April, the stock was trading well over 10 million shares each day and now hasn't seen a 10 million-share day since early June.

Novellus

Where's the volume? Where is all that cash they tell us is sitting on the sidelines? Sure, they can rally in here, but without volume, do they really have the fuel for a big breakout? I don't think so.

Overbought/Oversold Oscillators

For more explanation of these indicators, check out The Chartist's primer.