Indices Look Strong but Stocks are not Confirming

Yesterday we mentioned the fact that Wednesday's market felt a lot worse than it looked. This is because while the major indices were holding up, breadth was poor and stocks in general were just behaving badly. Yesterday morning we felt the brunt of this behavior as support levels were hammered and many many traders were whipsawed out of their trades. After the Fed Chair gave his speech, the indices rallied broadly and stocks that had shaken people out came back up, but most on low volume. Not the indices though. They rallied hard on very heavy volume as program trading kicked in at the prospect that interest rate hikes are history; at least for now. After a rally like we experienced in the indices we would expect to find a broad selection of strength and buy set ups. In fact the opposite is true. Today's scans showed that most stocks did not participate in yesterday's high volume index rally. Does this mean that smart money is gunning only a few index stocks to create a picture of strength when in reality there is none? It sure looks that way to us. We are now at the point of the month where we should see funds putting some money to work and that should keep a floor under the market and perhaps could improve the underlying technical situation. As of right now though, this market looks sick to us and caution flags are being raised. We wouldn't short this market yet, but definitely be careful here. Use your stops and don't buy aggressively. Don't get suckered into the idea that the market will rally now that interest rate hikes are done (or likely done). It may indeed rally, but let it show you proof. Don't buy in anticipation because right now the underlying story of the stocks just does not read very well.