Tuesday's Unconvincing Session

On the surface, Tuesday's nice percentage gains for the Dow, S&P 500 and Nasdaq looked pretty good. All three indices finished in the top half of their trading ranges, and volume rose sharply from Friday's anemic levels. The S&P 500 and New York Stock Exchange Composite Index broke out over key resistance levels. But underneath the surface, the gains weren't all that impressive. For starters, volume on the NYSE was below average at 764 million shares. On the Nasdaq, volume was average at 1.64 billion. It's still not clear to me that new money is moving in from the sidelines. If it were, you'd see volume expansion, and there was none of it on Tuesday. Inside the Dow, stocks with the weakest charts fared the best. Alcoa (AA) added 6.7% to $9.23 ahead of its earnings report on Jan. 9, JPMorgan Chase (JPM) rose 5.2% to $34.98, and Bank of America (BAC) gained 4.3% to $5.80. All three stocks remain far off their 52-week highs and have a lot of overhead supply to work through. Overhead supply is selling pressure that arises from investors who bought on the way down. When the stock gets back to where they bought it, they sell to break even. Another disconcerting aspect of Tuesday's session that there was no shortage of stocks that finished near session lows after early strength. That's not great to see on a supposedly strong day for the market. Did you catch the transports act? After hitting an intraday high of $91.81, the iShares Dow Jones Transportation Average Index Fund (IYT) finished near its session low. Shares still rose 1% to $90.34. Buying demand dried up in top holdings such as Union Pacific (UNP) and Norfolk Southern (NSC). After early strength, both stocks finished well off their highs. Another stocks in the transportation sector, Wabtec (WAB), turned in an absolutely miserable performance. After hitting an intraday high of $72.41, shares fell 1% to $69.25 in heavy volume. Plenty of other growth names that I follow had early strength but finished near session lows. Select Comfort (SCSS) tried to break out of its base but reversed. After hitting an intraday high of $23.34, it closed at $22.15, up 2.1%. And two restaurant stocks with solid fundamentals and decent charts headed into Tuesday reversed in spectacular fashion. Shares of Panera Bread (PNRA) cratered 3.7% to $136.19, while Buffalo Wild Wings (BWLD) lost 3.2% to $65.35. Other strong performers with top fundamentals, such as MasterCard (MA), TransDigm Group (TDG) and Questcor Pharmaceuticals (QCOR), also took big hits on heavy volume. Weak action in all of these names tells me that the risk on trade isn't necessarily on at the moment. Two institutional-quality names that continue to trade well are Google (GOOG) and Intuitive Surgical (ISRG). Volume hasn't been huge during Google's recent run, but it continues to trade nicely above its last buying area at $618.30. Intuitive Surgical, meanwhile, has been chugging higher on light volume since hitting a low of $420.84 on Dec. 15. Sellers are nowhere to be found. The overall action in growth names I follow was suspect at best on Tuesday. In the early stages of a new market uptrend, new leadership doesn't have a problem making its presence felt. Real estate investment trusts (REITs), utilities and other defensive industry groups aren't my idea of leadership. True market leaders are innovators in their groups with strong charts and bullish fundamentals. Plenty of innovators are showing big earnings and sales growth in recent quarters, but I'm seeing very little in the way of bona-fide technical breakouts in heavy volume. This is where the new leadership tends to come from. Without meaningful leadership, I'm skeptical about the market's ability to deliver meaningful gains from here.

Tuesday's Unconvincing Session

Volume was tepid, transports landed on their faces, and we lack leadership.

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