Which way will it go? I don’t have a crystal ball, but let’s have a look at the Nasdaq Composite since it is trying to come back to life and lead the market. The Nasdaq started consolidating before the Dow and S&P as demonstrated by its weakening relative strength line over the last few weeks. Notice below how tight the Bollinger Bands have become. That is the tightest they have been since the rally started in March. Volume has dried up as well which shows a lack of conviction by either side. It is very popular to predict at this point that the next move will be lower because of the length and magnitude of the rally thus far. Every time selling has started to accelerate since March, buyers have stepped up, or sellers have exhausted themselves. Action earlier this week may provide some clues as to near term direction. Sellers exhausted themselves in the first ten minutes of trading on Monday, were virtual no shows on Tuesday, and provided no follow through selling after Wednesday's gap down open. That has been the pattern for this rally. With so many predicting that this is the end of the line, we could see one more push higher into September. This rally has been nothing short of amazing, and it may have one more trick card up its sleeve. 

 

Make no mistake, this rally is very long in the tooth and if it breaks higher, this push up may be its last.  The two day rally off of Monday's gap down open has had no leadership.  Tuesday's rally was a random bounce with money flowing into dollar sensitive areas.  Wednesday's rally was led by energy in more of a knee jerk reaction to a spike in the price of crude oil.  Energy has not been a leader for some time as the chart below suggests.

 

Tech gave up its leadership of this market in late June, when fast money chased financials, real estate, and retail based more on hope than substance.  Now that those areas appear to be flaming out (take a look at IYR), we are left with a rudderless ship.  So while this squeeze could result in one more push to new highs, the absence of leadership combined with light volume could present one heck of a shorting opportunity come September.