Financials Are Looking Interesting

03/26/2012 7:15 am EST

Focus: STOCKS

While the rally slows, volume is increasing, and more volume means we’ll get a clearer picture of where the serious money thinks stocks—and the economy—are headed, observes Jason Cimpl of The Daily Profit.

The market retreated last week, but volume has picked up.

The increase in volume over the past week is strange. Stocks have ripped higher since October. Yet volume levels shrank since December. The increase in volume over the past week not only follows a six-month rally, but it’s coming at a time when there is very little data to celebrate.

As I briefly mentioned last week, only time will tell if this new volume is institutions accumulating or distributing shares. It seems crazy to me that big money would place an all-in bet given the conditions, but it’s possible. After all, our dear friends at Goldman Sachs (GS) published a research report that, I kid you not, says right now is the best time this generation to buy stock.

Whether the Goldman boys are right or wrong isn’t our concern. It may be the best time ever to buy equities, but we are traders. We don’t buy and hold.

And despite the report, I can only carry a cautiously bullish stance—the same stance I have carried since late January.

Also, the most likely reason why volume levels have increased over the past week is due to the selling in bonds. Most US bonds have been creamed since last week. The selling in bonds indicates big investors have raised a large amount of cash. It appears that some of that capital has trickled over into stocks.

The bulls were able to claim a big, but far from obvious win last week. Unless you read the morning alerts, it’s likely that this piece of information went unnoticed. Last week, I mentioned how Bank of America (BAC) hit $10 per share on Monday, and then sank like a brick in water.

In that decline, Bank of America formed a major reversal candle. But in order for the bears to achieve a victory, they needed to tear the stock lower. This would have been an important showing from the bears, because Bank of America is a top stock in the leadership index.

As we have seen repeatedly from the pathetic bears in recent months, they failed miserably to add any selling pressure to the stock. Shares no longer show any signs of a major bearish reversal.

The indices continue to look frothy. At the same time, there is no sign that the bulls are ready to take a breather. Only the Russell 2000 looks weak, but that index has the ability to turn on a dime.

I’m not expecting much of a move from the indices, but that doesn’t make me the slightest bit bearish.

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