Friday was indeed a very bullish session and the good news to some market players was that volume was higher on the NYSE and almost at the same level as it was on the Nasdaq from Thursday. The other good news to some was the fact that most of the indexes made up all the losses from the day before. This all seems bullish on the short term but I think it is wise to look at the big picture before jumping to any conclusions.

First off, I don’t want to poo-poo on the rally we had Friday as I will admit I am just happy to see more green with a pickup in volume. However, we have to be realistic and look at history as our guide for the now and future. If we study history we will see that the best bull markets do not start with a powerful day one. No, instead, history shows that most day ones are a quiet new low, reversal, and then a higher up day.

Where the big gains come is normally on day two of the rally or on the Follow-Through Day. The fact that we rallied so hard after such a big down day shows me that this market is not making a low and in fact is still extremely confused. The fact that volume was lower on the tech heavy Nasdaq proves that institutional investors were not stepping all over each other to load up on stocks. But the higher volume on the NYSE did indicate that big investors did find some bargains with the NYSE/SP stocks.

Now with Friday’s gains I heard a few people make mention that Thursday was a capitulation day. I am sorry everyone, if you are not experienced it is not your fault that you do not fully understand a capitulation day. Luckily, for you, I do. And what a capitulation day would look like on the index would be similar to the price and volume action in ARB. Forgetting Thursday and Friday, ARB put in a very nasty selloff on HUGE volume after being in a downtrend for a very long time. This appeared to me to be capitulation on the stock. However, in a very weak market, they can keep going lower and this one did. But, if that volume surge would have come on the indexes on Thursday, that came in ARB on Wednesday, then after Friday’s gains, I could probably say that “yes, indeed, this was a capitulation day.” Too bad I can’t do that with the action on Thursday.

So what does this mean? Easy, it means that we are still in a very vicious downtrend on all time frames except the most short-term. Besides this very short-term time frame, the trend is still very much down from the October 2007 highs and with the general stock market indexes being so extended from the 50 and 200 day moving averages, it is near impossible to think a healthy rally can start any time soon with all that resistance above.

If we can continue to move lower on lower volume and then base out near the lows for a while, I would be much more bullish in a resumption of an uptrend. However, the damage keeps coming and every stock that continues to hold up in this bear market eventually gets taken out. This kind of action keeps the despair rolling and ensures that the capitulation fear that we need will not come.

When you have the indexes with D accumulation/distribution averages and the leading IBD indexes with low C’s, you can be sure it is not time to go long stocks. I mean heck only 4% of all stocks are above the 50 day moving average, with only 3% above the 200 day moving average. Combine that with the constant inability of any stock to make a new 52-week high and we are looking at a market that can still go much lower.

Don’t forget as we hit new lows on the index, the amount of new 52-week lows has only expanded to 2,300.