Market Rising on Weak Volume and Breadth

Last week was all about Friday. On Monday through Thursday, the S&P declined for 4 consecutive days (5 if you include Friday, 29 November). But on Friday, the market got good economic news, so the market opened up and  held its gains throughout  the day. The S&P 500 gained +20 points (+1.2%), The Nasdaq gained +29 points (+0.73%), and the Dow advanced +198 points (+1.26%).

Volume was lower than average on Friday, and also lower than Thursday's down-day volume. Therefore, Friday's advance is considered a weak statement by the bulls. The Nasdaq tested up to the last pivot high on 29 November, but the index met resistance and closed slightly below the prior high. The S&P an Dow did not come close to their previous pivot highs, but they did manage to close back above their 10 SMAs.

The big question looming over this market is whether good economic news will speed up the Fed's curbing of its bond-buying program. Ironically, an improving economy may lead to bearish market sentiment based on the perceived negative effect on stocks. Over the past few years, the market has been artificially energized by quantitative easing (easy money), so normal market forces of supply and demand have been skewed, making it harder to interpret the market's actions. 

That said, a trader always watches price, and does not try to predict the future.For now the market is rising on weak volume conviction. Market breadth is waning, momentum is slowing, and the risk of a market correction still remains high. This is a time for patience and caution. The market is still in an uptrend, but it would not take much selling to send it lower. A lower daily pivot high in the S&P would set up a potential bearish Head and Shoulders pattern.