As in response to may note in my last "Trading System" (on 5/18/2008) post that the market is overbought over the short term, on May 19, 2008 the stock market including the Nasdaq 100, DOW and S&P 500 indexes has dropped into correction. For me the cause of this drop is the high volume during the market up move in period from May 13 until May 16, 2008 (see high green MVO on the Nasdaq 100 and S&P 500 in that period). The question now is what are the odds of the developing this correction down into something bigger and what the technical analysis is telling about the possibility of the recovery.
Coming back to the 60-day chart I have stopped my choice on the S&P 500 chart. Basically, the technical indicators on the major three U.S. indices (DJI, Nasdaq 100 and S&P 500) look similar with the exception of the volume indicators at this point of time. I have selected the S&P 500 because it somewhat in the middle between the other two indices. While Nasdaq 100 shows the absence of the high volume during the price move down, as an opposite, the DJI index shows luck of the high volume during the price move up. From the volume analysis prospective the Nasdaq 100 still could be considered overbought while the DJI could be considered oversold over the short term. The S&P 500 in this prospective is in the middle by showing the high volume during the price rise as well as it shows the high volume during the price decline.
The same as volume indicators the other technical studies are mixed, by pointing to the oversold market (over short term) and possibility of a recovery, yet, they are still weak and I would look for more confirmation signals:
- The SBV is flat. Yes, it's big enough to indicate the oversold market, yet, it does not move up;
- The MVO on May 20-22, 2008 is actually a very good to indicate the possibility of a recovery, yet, it's not very impressive on the Nasdaq 100 index;
- The Advance Declines Issues Oscillator started to move down again. Even if it indicates high oversold levels on May 21st, I would not bet on a reversal until I see this oscillator moving up;
- MACD is moving up and this is positive for a possibility of a reversal;
- RSI and Stochastics are below 30 and 20 level respectively by indicating the oversold market, yet, it would be nice to see them above these levels moving up as confirmation of a coming recovery;
- The VIX (volatility index) is increasing by moving closer to 20 - not very nice;
- McClellan oscillator did advanced, yet, it started to move down again - I would prefer to see it crossing zero line on up move.
My view on the current market is that it should be watched very closely on the daily basis.....
Monday, May 26, 2008
S&P 500 Chart
Sunday, May 18, 2008
Trading System
In the last "Technical Analysis" post I have mentioned that I’m not going to be surprised of early exit from the correction. Starting from Monday the stock market is moving up.
Again we saw that the strong overbought indicators were needed to push the market in the correction while weaker oversold indicators have reversed the market back into the up-trend. As I said in my previous posts - this is one of the characteristics of the general up-trend. So far, I have not seen even closely so strong overbought indicators that could be compared to the oversold indicators in January and March 2008. Yes, we may face corrections down, yet I believe there is still some time before the market release the energy collected during the recent market crash.
Yes, my mood is bullish in the long run. You may ask why it’s so important for those who play on the short trades to spend time on the longer-term technical analysis. The answer is simple – one of the trading strategies that could use long- and mid-term analysis in the short-term trading system is do not place a short term trade against general market trend. Many traders consider it as a golden rule – DO NOT PLAY AGAINST THE TREND. Some traders interpret this rule as a short-term trader does not have to play against the short-term trend, however, this is not my understanding.
In my understanding the example of the implementing this rule into the trading system could be:
- If a short-term trader is bullish in the longer-term trend then
- A traders uses any correction down to open a long position
- A trader does not trade short no matter how strong overbought indicators are. He/she uses overbought technical indicators to close the long position but not to open a short trade
- The opposite for a trader in the bearish longer-term mood.
This is my understanding of "DO NOT PLAY AGAINST THE TREND", That is why I spend time to analyze the general market trend even if I do not use it to invest for a long-term…
Ok, no back to the market. Sorry, I do not post the chart today, yet I may say that my technical indicators tells me that again we may see some correction, yet, I would consider that it’s a little bit early to talk about it. Yes I may see the short-term indication of the overbought market, however the S&P 500 and the NASDAQ 100 indexes in the up move (DJI Index is exception – it stuck on the same level over the last 3 sessions) and as a rule very often we see some flat market before any serious correction. I would monitor closely the indicators over the next sessions to see if there is any indication on the correction…
Saturday, May 10, 2008
Technical Analysis
I’m still bullish – see my previous "S&P 500" post - yet I think we are facing the correction within the stronger dominant up trend.
By coming back to the 60-day chart, I may say that my set of the technical indicators does not look very optimistic at this point of time. The only promising point is the negative MVO seen on the Dow Jones Industrial (DJI) on May 8, 2008. It tells me that on his day we had some abnormal volume during the index drop, which could lead to the reversal up move. However, the S&P 500 MVO on that day was much smaller and the absence of the negative MVO make me assume that we still could see some down side move. I would say the DJI is ready for up-move, yet, the Nasdaq 100 and S&P 500 still may push the market down.
On the other hand over the past couple of weeks we saw situations when the market moved up by ignoring oversold indicators and negative news. It's usual characteristic of the bullish market when the weak overbought (bullish) technical indicators and small positive news are pushing market up while much stronger oversold indicators and much stronger negative news are needed to push the market into down-side correction. So, I'm not going to be surprise if I see early exit from the correction.
On this week I have added McClellan oscillator to my chart. Technical analysis based on the McClellan oscillator helps me better separate periods of the bullish and bearish mood on the stock market. Recently we saw advancing McClellan Oscillator and that tells that we may face the reversal - it's another positive sign. Yet, yesterday it stopped to advance and started to decline, by indicating that the correction is not over yet.
The main question for me would be to define the point or period when I may more or less safe state the odds are on the side of the up-trend. I would put several criterias which would help me define it:
As I already mentioned several times, this is my personal view on the stock market and it does not mean that my technical analysis is correct...
Saturday, May 3, 2008
S&P 500
Today I would like to refer to 1-year S&P 500 chart. I have not been showing this chart for a long time – last time I have mentioned it on February 2, 2008 in my "S&P 500" report. I have mentioned 2-year S&P 500 chart in my "Technical Analysis" post on February 16, 2008. As you may see from these posts, time on time I refer to the big time-frame of the S&P 500 chart in order to evaluate longer term of the stock market trend. Those who read my posts may notice that over the last 3 months I have been somewhat aggressive about the recovery. I know that many of big and small traders were bearish that time (thanks to the media) and maybe skeptically looked at my bullish posts. I think there are still a lot of traders (those who follows news) who still believe in the global market crash based on the U.S. housing problem, high oil prices and fear of inflation. I may only say to them - "Good Luck, until you are bearish those who follow charts by ignoring CNN is making money…"
So today I coming back to 1-year chart to show the technical indicators that were screaming in all market sectors including DOW 30, NASDAQ 100 and S&P 500 starting from the middle of January and which did confirmed later that we are in bull market.
From this chart you may see the unbelievably huge volume surge in period from January 8 until January 25, 2008. As I have mentioned simultaneously before, it’s impossible for the stock market to go further down after such huge volume release. We should always remember (I’m repeating myself): the volume is two-side transaction – there are always a buyer and a seller. Some group of the investors was buying from those who sold in panic in that period, and those investors, who were able to buy such huge number of stock shares, dramatically reduced the number of panic traders. The same group of investors was buying in period from March 7 until March 24, 2008 and they are still buying… This is my GOLDER rule of the Stock Market Technical analysis "The big volume surge leads to the changes in the supply/demand balance" - the rest of analysis follow…
From the same chart I may see that there is still room for the market to go higher. We still have not seen any volume release to the price up move – I still do not see that those who were buying in January – March 2008 started to sell.
Friday, May 2, 2008
DJU Stocks
The Dow Jones Utility average index (DJU Index) was introduced in January 1929 as a basket of 18 stocks. DJU Index is one of the youngest indexes from three most popular DOW indexes - DJI and DJT indexes were lunched at the end of 19th century. On July 1, 1929, the number of DJU index components was increased to 20. On June 2, 1938 the DJU stocks number was reduced to 15 stocks, where it remains ever since.
Below you may see the list of the Dow Jones Utilities Stocks (DJU Stocks) as of May 2, 2008.Ticker Company Sector Exchange AEP American Electric Power Co. Inc. Electricity NYSE CNP CenterPoint Energy Inc. Multiutilities NYSE ED Consolidated Edison Inc. Electricity NYSE D Dominion Resources Inc. (Virginia) Electricity NYSE DUK Duke Energy Corp. Multiutilities NYSE EIX Edison International Electricity NYSE EXC Exelon Corp. Electricity NYSE FE FirstEnergy Corp. Electricity NYSE FPL FPL Group Inc. Electricity NYSE NI NiSource Inc. Gas Distribution NYSE PCG PG&E Corp. Electricity NYSE PEG Public Service Enterprise Group Inc. Electricity NYSE SO Southern Co. Electricity NYSE WMB Williams Cos. Multiutilities NYSE
The DJI Index Components
Wednesday, April 30, 2008
DJI Stock Listing
The DOW Index (Dow Jones Industrials or DJI) consists on 30 biggest public U.S, companies, 28 of which are traded on the New York Stock Exchange and 2 (Microsoft and Intel) on the NASDAQ Exchange.
The DJI index was lunched on May 26, 1896 and at that time it was a basket of 11 stocks. On October. 7, 1896 the Dow Jones Industrials index was increased to 20 stocks and in 1928 the DJI index was expended to 30 companies.
Below you may see the list of these 30 DJI Stocks as of April 30, 2008.Ticker Company Sector Exchange MMM 3M Co. Diversified Industrials NYSE AA Alcoa Inc. Aluminum NYSE AXP American Express Co. Consumer Finance NYSE AIG American International Group Inc. Full Line Insurance NYSE T AT&T Inc. Fixed Line Telecommunications NYSE BAC Bank of America Corp. Banks NYSE BA Boeing Co. Aerospace NYSE CAT Caterpillar Inc. Commercial Vehicles & Trucks NYSE CVX Chevron Corp. Integrated Oil & Gas NYSE C Citigroup Inc. Banks NYSE KO Coca-Cola Co. Soft Drinks NYSE DD E.I. DuPont de Nemours & Co. Commodity Chemicals NYSE XOM Exxon Mobil Corp. Integrated Oil & Gas NYSE GE General Electric Co. Diversified Industrials NYSE GM General Motors Corp. Automobiles NYSE HPQ Hewlett-Packard Co. Computer Hardware NYSE HD Home Depot Inc. Home Improvement Retailers NYSE INTC Intel Corp. Semiconductors NASDAQ IBM International Business Machines Corp. Computer Services NYSE JNJ Johnson & Johnson Pharmaceuticals NYSE JPM JPMorgan Chase & Co. Banks NYSE MCD McDonald's Corp. Restaurants & Bars NYSE MRK Merck & Co. Inc. Pharmaceuticals NYSE MSFT Microsoft Corp. Software NASDAQ PFE Pfizer Inc. Pharmaceuticals NYSE PG Procter & Gamble Co. Nondurable Household Products NYSE UTX United Technologies Corp. Aerospace NYSE VZ Verizon Communications Inc. Fixed Line Telecommunications NYSE WMT Wal-Mart Stores Inc. Broadline Retailers NYSE DIS Walt Disney Co. Broadcasting & Entertainment NYSE
Saturday, April 26, 2008
VIX Index
I have stated in my previous "DJI chart" post about the possibility of the short term correction which could be caused by the high volume during the index up move on April 18, 2008. It’s difficult to say that April 22, 2008 – one day decline could be considered as a correction. Overall I would say we saw flat with small rise market over the last week.
Analyzing 60-day chart I may say that the technical indicators look positive. Yet, we start to see some negative alerts. The first negative point is that Advance/decline issues and volume oscillators started to decline telling us that we could be in the stage when the market is oversold in short-term and we may see the correction down. Second negative point is that now, we have even bigger than the last week positive MVO. We may expect that high volume on April 18 and April 23-24, 2008 may reverse the stock market down into correction.
The positive is that we still see rising SBV, RSI and Stochastics. The biggest positive factor on my opinion is that the VIX (volatility index) is below 20 now. The last time we saw VIX below 20 on December 26, 2007. This is a good sign that the fear is down and we may face the continuation of the recovery.
I consider the VIX index as an indicator of the market stages. As a rule I use it to adjust the indicators I use in my technical analysis. I believe, that in order to achieve the better result and avoid big loses a trader has to define clearly the periods when his/her technical indicators works the best and isolate the periods when the indicators do not work. Without doubt the VIX helps me mathematically identify these periods.
In overall I am still on the side of the recovery. I still believe that the market is heavily oversold and we should see the S&P 500, NASDAQ 100 and DJI indexes higher. Yet, taking into account the high volume over the last 2 week, I consider that there is a high possibility of the correctional move down. Should we face it, most likely it will be the correction within the dominant recovery.
Sorry, no chart today.
Sunday, April 20, 2008
DJI Chart
As I have mentioned in my last "DJI Volume" post the DJI high volume surge on April 11, 2008 had pushed the market higher. My point that the decline started on April 8, 2008 could be a short lived (see last paragraph in my "Technical Analysis" post on April 6, 2008) has been confirmed by the strong recovery - the Nasdaq 100 and DJI indexes have broke the February 2, 2008 high (the S&P 500 index is still below. )
I think the recovery trend has defined itself very clearly. For those who still believe in recession I may only say – yes…, maybe…, yet I do not think now. I do not look for a year ahead. Maybe, we are in the global recession and the stock market will be lower in a year… However, I do not think it is going to happen "tomorrow". First, I think we have to see some recovery as reaction on January and March huge volume release, then we will see – that is why we analyze charts on daily basis.
Taking look at the current chart I may say that result of my technical analysis based on the NASDAQ 100, DJI and S&P 500 is bullish. All my technical indicators on all three indexes are positive: VIX is dropping, SBV and advance decline oscillators are moving up, average volume is lover then in January – March period, RSI and Stochastics are above 70 and 80 respectively.
One thing that disturb me is that I start to see growing MVO(5,25,3) on the 60-day chart, which reveals me that we have growing volume in relation to the average volume over the last 25 trading hours. The same as on April 11, 2008 I may say that this volume may push the market in the correction. Again, I would not expect to see the correction until MVO is back to the zero line – only then I would consider the increased possibility of the correction.
Overall I would say that I would expect the indexes to move higher or move flat, to the point when I see MVO(5,25,3) on the 60-day chart equal zero. Then I would check the chart to consider the possibility of the correction.
The most positive factor in the recent correction down (April 8 – 14, 2008) for me is that the stock market was pushed into this correction by the big volume generated during the indexes up-move on April 1st, 2008. The big MVO could be noted on all indexes including NASDAQ 100, DJI and S&P 500. However, the stock market was reversed on the mach smaller volume surge during the index down move on April 11, 2008. The only big negative MVO could be seen in the DJI sector on that day. That tells me that the stock market is in the stage when the big volume is required to push it down and much smaller volume is required to reverse it back into up-trend. The "news lowers" and "news followers" could notice as well that the stock market started to react on the positive news much stronger then on negative news… All of this I consider as confirmation of the development of the recovery.
Sunday, April 13, 2008
DJI Volume
As I expected in my last "Technical Analysis" report, the market dropped down. The question I can put now could be "Is there a possibility that the current move down could develop in something stronger and push stock market lower towards the January 23rd and March 17th lows or this is just a healthy correction within the mid-term down-trend?"
There are several factors that points in the favor of the further slide as well as there are a few points that tells that the stock market may reverse soon back into up-trend.
First of all the index based technical indicators are still bearish and point to the higher possibility of the further slide over the next few trading session. I have pointed in the previous repos that the volume surge generated during the index up-move on April 1-2, 2008 (see green MVO) may push the market down, and now we see the U.S. indexes in the correction. The good news is that we may see the equally high volume surge during the index drop on the Dow Jones Industrials (DJI) (see red MVO) – very strong volume to the DJI down-side and very good sign for a reversal in the near future; however, we still see nothing in the NASDAQ 100 and S&P 500 market sectors. That’s why I’m still concern about possibility of the further slide.
Over the mid-term I’m still on the side of the up-trend. It is still difficult for me to believe that the huge volume of the shares that was dumped on the market in January and March 2008 is already processed by the stock market. I think everybody agrees that majority of traders, and portfolio managers were selling in this period, yet there was a second group of (I believe small and powerful) of traders who bought this huge amount of shares and now the stock market may go into further recession (on my opinion) only after this second group of traders start to sell these shares…
Sunday, April 6, 2008
Technical Analysis and Media
Haven't been making any posts for the last two weeks. If you read my previous post you may see how skeptical I was about all this noise in the media about recession. The same as before, my view on the market is that the January 22-23, 2008 could be considered as the end of the market crash.
My major point was and it's still is that the huge volume released during this stock market crash, especially in period from January 8 until January 25 2008 has set the strong support level. As I always mention - volume is 2-side transaction. If we have volume = 6 billion shares on January 23, 2008 that means that huge number of traders sold 6 billion shares in panic under the media pressure about the long-term recession.
The Question #1 that each trader has to ask: who bought these shares (that’s why we have volume)… Interesting… who could buy such huge amount of shares in the period of the world wide panic and in spite of all the bad news and in spite of all the talk about stock market crash…. Question # 2 that should be asked: What are those traders who sold in panic are going to do now?... They have cash, they do not have shares… Sooner or later they have to start investing again…. yet nobody selling any more in panic….
In the middle of the March 2008 we had second attempt to break the support level set in January. Some of the indexes break it (S&P 500 and NASDAQ 100) some do not (DJI). Again we had huge volume release during this time, again some 'mysterious traders' were buying while everybody were selling in panic under the media pressure about U.S. banking system crash….
Now we are up again…. Do you still trust media…. Where they were when the crash started in October 2008?…
Ok. Let’s go back to the market indicators. Let’s take a look at charts to see what they tell us.
If I look at 2-year chart I see very positive sentiment. The fact that the volume is down and VIX (volatility index) is down reveals that the market is going away from the panic selling. NASDAQ 100 has broke the February 4, 2008 high, yet the S&P 500 and DJI is still a few points below this level. Overall mid-term indicators look bullish by showing that there is a good potential of the further recovery development.
It was the big picture. If we take look at the shorter term charts and technical indicators we may not see such bullish picture. The last week recovery has brought the stock market in some overbought stage that may push the market into short-term correction (which could be healthy for recovery continuation). On the 60-day chart we may see oversold SBV(20) which moves down by indicating the possibility of the correction. Big MVO(5,25,3) on April 1–2, 2008 would point to the big volume surge during the price move up which may reverse the trend down. Advance decline indicators are moving down towards the negative territory by revealing the growing bearish sentiment. RSI and Stochastics are at the oversold levels and it looks like they have tendency to move down. MACD is moving down as well (negative sign). The indicators are bearish on all indexes including the NASDAQ 100, S&P 500 and DJI. That tells me that we have possibility of the move down over the next few trading session. Yet if the current move up is begging of the recovery from the market crush then we may face the situation when the expecting correction could be shallow or when the bearish indicators are ignored.
In few words, my technical analysis tells me mid-term up, yet short-term dowm.
Sunday, March 23, 2008
Dow Jones Transport
Another week of crazy market is behind. On Monday the S&P 500 broke January 23rd low just to recover about 5% by the end of the week. Very unexpected recovery for those who follow the news… All the media around the world is talking about recession, yet the market is where it was in the beginning of the February, 2008. If you take a look at 2-year chart you will see that the last 2 months the market moves flat. Yes, the range is big and is between the January 23 low and February 1, 2008 high (on some indexes it’s about 10%), however, basically, we are back where we were two months ago. In addition the DJI index still did not the brake the January 23rd low.
From 1-year chart you may see that the recession started in October 2007. (Does anyone remember when media started to talk about recession??? Where they were in October?)
If you take a look at DJT (Dow Jones Transport) index you will see that this index started the down move back in July 2007. It would be wrong to say that now the DJT index in the bear mood – this index more than 17% up since the January 22nd low!!!
The DJT went into the recession about 3 months earlier than the rest of the market… can we assume that the DJT may start to recover from the recession a few months earlier as well?
Sunday, March 16, 2008
VIX
The past week has been extremely volatile. On Monday the S&P 500 index dropped almost 1.5%, on Tuesday it run up for about 3.5%, on Wednesday the S&P Index advanced for 1% at the opening only to drop later by 3%, on Thursday we had 2% rally up again and on Friday the S&P 500 declined for 3% with 1% recovery by the end of the session. Scary week…. If we take a look at the VIX (Volatility Index) we see that the VIX is around the highest levels we saw on January 22-23, 2008.
I believe many traders faced the situation when the technical analysis they used simply does not work. You open a position when it too late and right before the market reverses it’s trend and you cut losses again right before another reversal…
Welcome to the volatile market. I have already mentioned several times that when the market changes it’s direction very fast (volatile market) the intraday charts should be monitored more closely. That’s when the VIX index becomes handy. It would be wrong to assume that the same trading system (the same indicators setting) should work forever and in any market condition. Even if a trader has a successful trading system that has supported him/her over the past year and now it’s started to generate fake signals - it would be wrong to say that the system is bad. No! There is nothing wrong with the system, simply this trader did not pay attention to other indicators and did not do his homework. All he has to do is to adjust the trading system to the volatile market.
If you see that trading system you used over long period of time has started to generate signal too late then it means that you have to adjust the system instead of throwing it away. Maybe, you have to change the period setting of the indicators; maybe you have to change the signal trigger level… It does not mean that the changes you are making has to be constant - when you see that the stock market is back to the normal trend, when you do not see any more crazy swings and when VIX is down again (perfect indicator of volatile market) – I believe, it would be possible and logical to come back to the old system, to the old chart and indicators settings which supported you before.
One of the best trading strategies in the volatile market could be staying out of the market. Some traders may prefer to say in cash and do not trade at all when they see the high VIX levels. Yes, in volatile market you can may quick and good money, yet, at the same time you may lose everything very fast.
My point is that every trading system has to be monitored on a constant basis and has to be adjusted to the market condition. For the current market simple rule could be embedded into each system: If I see VIX at high level then I should stop trading and using my technical indicators until the VIX is back below the level that is critical for my trading system
Coming back to the chat that I made a habit to have posted every week, I may say that the technical indicators on the S&P 500 index are not very optimistic. They point to the possibility of the further slide. Again, remember – we are in volatile market and sentiment could be changed very fast…
or
If I see VIX at high level then I should adjust my trading system and technical indicators and come back to the old system setting when VIX is back below the level that is critical for the system.
Saturday, March 15, 2008
DJI
The Dow Jones Industrial Average Index (DJIA) is maintained and reviewed by editors of The Wall Street Journal. The first time the DJIA index was published on May 26, 1896 as a basket of twelve industrial stocks. The number of DJI stocks included into the index was increased to 20 in 1916 and to 30 stocks in 1928, as it remains by today.
The same as almost hundred years ago, the Dow Jones Industrial Average consists of 30 of the biggest public companies in the United States. Yet, the total number of public companies traded on the U.S. stock market is far above the number that was in 1928. Even the Dow index is one of the most watched and analyzed indexes over the world more and more analysts consider S&P 500 index as a better thermometer of the U.S. stock market.
Still, the simple fact that DJI index is one of the most analyzed indexes in the world places the DJI index into the position when the index movement may affect the stock market sentiment. Very often the bad news in the DJI sector may drug the whole U.S. market down and that is the main factor why many technical analysts still donate a lot of time to the DJI analysis in spite the fact that S&P 500 is considered better when it comes to describe the US stock market sentiment.
Beside the financial analysts who analyses U.S. economy and U.S. equities market, there are many financial advisors, institutional and retail traders who rely on the DJI technical analysis for the trading purposes connected directly with the Dow index investing.
One of the most popular DJI investing is trading DIA – very often called as DJI index tracking stock. The DIA is an Exchange trading Fund that track the performance of the Dow Jones Industrials Average index.
Another popular way to invest into the Dow index is the DJX options (Dow Jones Industrial Averages Index Options) which allow speculating on future Dow movements. Dow e-mini futures trading is another investing type that attract high risk speculators.
Even pension funds have found a way to invest into the Dow index trough index tracking funds. The Rydex funds are considered one of the most popular funds that allow investing IRA and 401k account into DIJ on margin (by using dynamic or double Dow funds) and trade Bear market (by using inverse DOW funds).
Of course, the direct trading of the stocks from the DJI index basked is considered as investing into the index as well and here the DJI index analysis could become handy as additional to the stock analysis.
Tuesday, March 11, 2008
S&P 500 MVO
Very nice day – I think it was very unexpected day for those who read and follow Yahoo and CNN news…
I may only say that following my S&P 500 post on March 4, 2008, the market confirmed one more time that High MVO has to be paid off. Maybe, March 4 was a little bit early to talk about that, the common rule is that the reversal occurs not at high MVO but when after hitting high positive or negative levels the MVO comes back to zero line. It could be very easy checked by scrolling back in history (lucky for us MarketVolume.com allows to scroll back in history).
Without posting a chart I may say that all indicators on the S&P 500, NASDAQ 100 and DJI indexes are positive and pointing up. I think it’s going to be very interesting week…
Sunday, March 9, 2008
Technical Indicators
The last two sessions have moved the indexes close to the January 23, 2008 lows. Over the last week we may notice that the Nasdaq 100 was behind the S&P 500 and DJI in this rally down and as a result we have some difference in the technical indicators on the 60-day chart. The S&P 500 and DJI 60-day technical analysis are not optimistic. The majority of the indicators are still in the negative territory by pointing to the possibility of the further slide. The NASDAQ 100 60-day indicators are less negative but they point to the posibility of slide as well. Yet, as I always state the 60-day charts should be monitored in real time – what is negative today could become positive tomorrow within the first hour of trading.
Tuesday, March 4, 2008
S&P 500
In my last "Technical Analysis" post on March 2, 2008 I have mentioned about negative stock market sentiment on the 60-day chart and possibility of the further slide. Today we had some changes on this chart view, and I would like to go back to this chart again.
As we may see the majority of the technical indicators are turning from the oversold levels into recovery mode. From the chart above we may see that today 1. VIX index started to decline – the number of panic seller is redusing
There are still a few factors that may point to the further volatility, falt ar down market:
2. RSI crossed the 30 line and is moving up
3. Stochastics is rising after running over 20 level by indicating the move out from the most recent lows
4. MACD is rising
5. A/D volume and issue oscillator is rising showing us the traders are more focusing on the advancing stocks.
6. SBV Oscillator is rising – that tell us about possibility of the changes in the supply/demand balance1. The SBV is still very low – it would be nice to see it moving higher.
The most positive factor for me are the high volume surges and that at the end of the session recovery was on completely negative news - I have not seen so negative news in Yahoo finance and CNN money for a while…
2. The MVO is still low – it would be nice to see it equal to zero.
As I mentioned several times, the recent drop was mainly caused by the high volume on February 26, 2008 in the S&P 500 and DJI sectors. We did not saw the similarly high volume in the Nasdaq 100 sector and as a result the recent drop was lead by the S&P and DJI mainly. Now, after 4-session drop, I think we could be going into the Bull market back. Let’s see what we have tomorrow…
Sunday, March 2, 2008
Technical Analysis
My worries about the possibility of the down stock market, expressed in the previous Overbought - Oversold post was not without a reason. The big volume surge to the price move up on the S&P 500 in period from February 26 until February 27, 2008, clearly seen on the 60-day MVO (5,25,3), pushed the stock market lower.
The same as before, I would assume that the market would not go deep – I did not saw big volume surges in the same period on the DJI and NASDAQ 100 chart that would be similar to the S&P 500. Yet taking look at the 60-day S&P 500 chart (Nasdaq 100 and DJI chart looks similar) I may say the stock market sentiment is still very negative and we still may expect further slide or flat market. RSI is below 30, Stochastics is below 20, VIX (Volatility Index) is growing, SBV, MACD, Advance/Decline Volume and Issues Oscillators are in the declining trend – all of these indicate me that the stock market is in the Bear mood, yet it could be very close to the oversold stage. What is needed to become oversold is a high volume surge at the bottom. When I see the big negative MVO on the S&P 500 that could be similar to the one saw on February 7-8, 2008 then I may assume that the indexes are ready for up-move.
Keep in mind that I do not use the technical analysis based on the 60-day chart to analyze the mid-term trend. Yes, this timeframe could be considered big (covers 2 months period) and one bar on this chart equal one hour, yet, I consider that 60-day index technical analysis helps me predict trend for the next couple of sessions. The 60-day chart is still dynamic and the technical indicators may change its direction within a single session several. If you choose to use 60-day chart, then I may recommend monitoring them in real-time.
For a mid-term technical analysis I would consider analyzing higher timeframes where at least 1 bar = 1 day and which could be analyzed after the market closes. The examples of such timeframes could be 1.5- and 2-year chart.
Tuesday, February 26, 2008
Overbought - Oversold
Finally, we have got above the upper trend line (see my NASDAQ 100 Chart post) . Maybe, not far above on the NASDAQ 100, but S&P 500 and DJI strongly overrun this line. The next sensitive line is February 1, 2008 high. In spite of the constant media pressure about recession the S&P 500 and DJI indexes already have recovered about 8% from the bottom of the January 23, 2008. The NASDAQ 100 is still behind.
The last 2 session we had strong move up. My indicators that I refer in my previous posts are still bullish and point to the possibility of the further up move. Yet, there is a few factors that make me cautious by pushing me to watch the charts more closely over the next couple of days. The main point that makes me worry is today’s high positive MVO(5,25, 3) which reveals the high volume surge to the price move up. The last time we saw high positive MVO on February 1, 2008 right before 5% drop. Yet, the today’s volume surge is somewhat lover and not so strong (MVO is smaller than January 30 – February 1, 2008 MVO). In addition we do not see the high MVO on the NASDAQ 100. So, in general there is still potential for up-move.
The intraday indicators (15-day chart) show some overbought levels by pointing to the possibility of the slide. 60-day chart indicators are at high levels and could become oversold as well.
The best confirmation of the up-trend would be when we start to see that the stock market ignores intraday overbought indicators by continuing moving up or react on them with small correction and show stronger reaction on the weaker oversold indicators.
Sunday, February 24, 2008
S&P 500 Trading
S&P 500 trading is one of the most popular ways to invest into the market. While you cannot trade the S&P 500 index there is other trading vehicles that allow to trade the index.
Buying stocks from the basket of the S&P 500 index is one of the main ways of investing into the S&P 500 index. If you know that the stock moves along with the index, this is when the index analysis comes handy.
Besides the trading stocks an investor may invest directly into the securities that track the index itself. In this case it would be even more correctly to apply index analysis instead of the analyzing the security that tracks the index. With introduction of the Exchange Traded Funds (ETFs) a trader may buy and sell a stock that tracks the S&P 500 index. SPDRs (SPY), commonly called as “Spider”, stays for Standard & Poor's Depositary Receipts. The SPDRs track the S&P 500 performance and is traded under the SPY ticker on the AMEX.
The common mistake could be to analyze the SPDRs forgetting that this is a tracking stock and it moves in the direction of the benchmark index. If the SPDRs technical analysis tells you that it should be down while the S&P 500 technical analysis point to the up move, where do you think the SPDRs will go??? Will it follow your analysis against the index move which it tracks??? I don’t think so… As you may see it would be logical in this case to analyze the S&P 500 index and use the SPDRs analysis as a confirmation only.
There are other less popular ETFs that track the S&P 500 index and that could be traded on the base of the index technical analysis: iShares S&P 500 (symbol: IVV),
Besides the ETFs there are other trading vehicles that attract more risky traders who analyze the indexes:
S&P 500/BARRA Growth Index Fund (IVW),
S&P 500/BARRA Value Index Fund (IVE). S&P 500 index options,
The Rydex and ProFunds funds that tracks the S&P 500 index has become very popular as well.
SPY options,
S&P 500 e-mini futures.
As you may see the S&P 500 trading is very popular among the investors and the index technical analysis is one of the main sources of the info for many of them.
NASDAQ 100 Chart
It’s a month since the indexes hit the bottom on January 23, 2008. The media still talk about recession, I think majority of traders still expect further crush, yet the market is basically flat. The NASDAQ 100 is modestly below and the S&P 500 with DJI are a little bit above where they were on January 28, 2008. Over the past month we had 2 attempts to revisit the January 23 low - on February 7th and 22nd 2008. The most clearly it could be seen on the NASDAQ 100 where the index almost hit the bottom, while the S&P 500 and DJI were still more than 3% above.
The main question still remains unchanged: are we going to see further crash or the market will move up?
This week I have posted the NASDAQ 100 chart, yet, the picture on the other indexes look the same. 
The indicators on the 60-day chart look good for the recovery: volatility moves down, MACD, RSI Stochastics, SBV, AD Oscillators are heading up. The MVO is good, yet, still red. So, I would expect to see more up move during next week, at least at the beginning of the week (this is my personal opinion).
The 60- day chart would point for a possible trend over the next couple of days. It’s recommended to monitor this chart on the daily basis in order do not miss the changes in the sentiment. By analyzing the smaller timeframe – personally I prefer to watch 15-day chart – I may say the indicators are positive as well (sorry I do not post the chart) and we may see more up-move on Monday. However, by analyzing both this timeframes (60- and 15-day) we do not answer the main question about the general market trend. We may assume where the indexes could be over the short-term only…
To see the bigger picture, we have to analyze the bigger timeframe. By referring back to my previous “Technical Analysis” post on February 16, 2008 where I play around 2-year chart, I may only say two words – “No Changes”.
Tuesday, February 19, 2008
S&P 500 Chart
The 60-day S&P 500 chart has mixed indicators.
Positive signs:1. After high volume activity in January, 2008, we may see that current volume is much lover.
Negative signs:
2. SBV is rising
3. The last MVO was red – last volume surge was to the price move down
4. MACD is rising
5. Stochastics is rising
6. VIX (Volatility Index) declines.1. Advance/decline volume and issues oscillators are in decline
I would consider higher odds on the recovery. Yet the indicators may change and they need daily monitoring.
2. RSI is in decline
3. VIX is still at high level:
Do not confuse this post with my previous post. The previous post is based on the 2-year chart and would intend to explain my vision of the longer term trend, while 60-day chart helps me to assume the trend over the next couple of sessions.
Saturday, February 16, 2008
Technical Analysis
The last 2 weeks we had attempts to revisit the January 23, 2008 lows. Many traders, including me are still asking the question is this end of recession or we will see more down market. When you trade intraday charts, very often you fall under influence of the intraday sentiment. Especially now, when the market is still volatile and when you may see bigger then 2% runs within a single session.
This time I’m going to refer to the 2-year S&P 500 charts. I do it not to place a long-, or mid-term trade, but but I do it rather to calm myself down and to be sure that I use the correct strategy on the intraday basis. 
From the chart above I may see that this chart would point to the recovery.
I like that:1. All my indicators are moving up. That would make me assume that I may see the continuation of the recovery.
I still do not like that:
2. Big green areas on the SBV, which would tell me that the market is heavily oversold.
3. Huge MVO, which would point to the huge volume surges of panic selling, which should lead to the shift in the supply/demand and trend reversal.
4. The MACD and Stochastics are moving up, which would tell the possibility that we already hit the bottom and are in the up-trend.
5. That S&P 500, DJI and NASDAQ 100 has simillar picture on all technical indicators I truck. It tells that the sentiment in all market sectors are the same.1. VIX is at high level. It would be nice to see it moving lower, which would tell me that desperate panicers are moving out of the market.
The biggest thing that I like about this chart is the amplitude of the recent volume surges. Each time after such huge volume surges we see the reversal. We had huge volume surge at the end of July – to the middle of the August 2007 (see volume surge #1 on the chart above). After that we had strong reversal. We had smaller by amplitude volume surge in the middle of November 2007 (see volume surge #2 on the chart above) and again we had strong 10% recovery on the S&P 500, NASDAQ 100 and DJI. Now we have the biggest by amplitude volume surge we have ever seen. That is the main reason why I expect for the strong recovery. After browsing in the history I see that each time the volume surge to the price downside pushes market higher later and I still did not see the reaction on the volume surge #3 (see the chart above).
2. At the same time I would like to see MVO=0 as well, which would point to the end of the sell off.
Sunday, February 10, 2008
NASDAQ 100
I would stay on the same as before – it’s difficult for me to believe that the market will crash further. After such strong oversold indicators…
Going back to my 60-day chart I may see that NASDAQ 100 is nice by showing that we may expect further recovery. However, there are 2 negative points on the S&P 500 and DJI that are not seen on the NASDAQ 100:1. Advance decline volume and issues oscillators are flat after being at higher levels – it would be nice to see rising.
The biggest positive sign for me is that we do not have such high volume as we had in period from January 15 until January 25, 2008. For me, this is indication that the main wave of the panic selling is behind…
2. VIX (Volatility index) is still at high levels – it would be nice to see it lower.
Whoever is reading this blog, keep in mind that I could be wrong; the market is extremely volatile over the last 6 months.
Even if I believe in the coming recovery it does not mean that it’s going to come tomorrow. On my opinion, the best choice for mid-term traders is do not play short and maybe stay in cash waiting for up-trend confirmation indicators before opening a long position.
I think it could be a good time to look for underpriced stocks… again, I could be wrong…
Wednesday, February 6, 2008
Recession?
As I mentioned in my last S&P 500 post “I may say that in short term I’m not as optimistic as in mid-term. There are some strong indications that we may see down-move… It could be for a few hours, it could be for a few days… Short-term chart are very dynamic and they should be monitored in real time…” - we saw strong development of the down move over the last three session. My worries about the volume surge (see the same post) was confirmed by strong drop on all major indexes. I did not expect to see such strong decline, yet on Monday after the market opening deep down my favorite the 60-day chart became stgrongly bearish.
The main question for me now is: “Is the recent drop a resuming of the long-term market recession or this is just a second wave of the retesting recent lows?” Under the second wave I mean the second attempt to hit lows before going back into the Bull market. If you go back to my S&P 500 post on January 27, 2008 you may see that I already mentioned about high possibility of revisiting lows. I will go back one more time to what I already told:If we take a look back in the history we will see that in majority cases the downtrend is very volatile at the bottom and we may see at least one strong attempts to retest the resistance level before the major up-trend become stable:
We saw attempts to retest lows on August 27-28, 2008
On March 13-14, 2008 the market retested March 5, 2007 resistant level before moving up
On July 16, 2006 the market retested the June 13, 2006 resistance.
Even taking look at the long-term downtrend in period from 2000 to 2003 we may the S&P 500 retested the July 24, 2002 low twice: on October 9, 2002 and second attempt was on March 13, 2003.
Overall, I still assume that there is good possibility of the reversal. The volume generated in the January is too big to be ignored. However, so far the indicators are bearish and they point to the possibility of the further slide. In such volatile market everything could be changed very fast.
Yes, each time such strong drops make everyone nervous… For me the best strategy in such market is to stay in cash…
Sunday, February 3, 2008
S&P 500
Sorry, I did not post anything during the week. I think my previous posts reflected my point of view on the current market very clearly. There were no changes - As I was expected we see the recovery, the S&P 500 and DJI have already made almost 9% up from the bottom of the January 23, 2008. The NASDAQ 100 has made less the 10%.
In spite all negative news we saw on the market, in spite of constant talking about recession, we had very strong recovery last week. To those who read CNN Money or Yahoo Finance and strongly believe that they help him/her to define the market trend I may only say “Do not read my blog… Go to CNN and Yahoo…”.
I never base my opinion about market on news and in many cases I think in opposite direction. I’m sorry I started to talk about media, but, it was so interesting to look how they tried to push everybody into Bear mood while the stock market recovered almost 10%. Does somebody asked them to do it?... Maybe those who was buying at the bottom… Starting fro January 16, 2008 we see huge volume surges and how I already mentioned several times, volume is always two sides transaction where we have a buyer and a seller – there is no doubt some group of traders was buying…
Ok, let’s go back to may charts. By looking on 1-year chart I may see the positive signals that we may see the continuation of the recent recovery. All my indicators SBV, MVO, Stochastics and MACD on this chart are rising by indicating the positive sentiment. The VIX (volatility index) is moving down on this chart and this very good as well.
Keep in mind I’m not talking about long-term market trend, there is a possibility that what we see could be a beginning of the long-term down-trend. I’m more concern now about mid-term. In order to make any statement about long term, it would be nice to see how far the market goes up before the next mid-term down move.
Coming to the lower 60-day time-frame I still may see that the majority of the indicators I use in the positive mood. However, now we may start to see some nice volume accumulation to the index up-move, we may see that MVO started to decline by trying finishing the picture of the huge volume surge to the price up-side. We ma see that Stochastics is going to cross 70 line and RSI is already over 80. All this tell me that we are still in the Bull market, yet the possibility of the correction down is growing…
I may see that the market has some potential to turn down into correction However, I would not expect to see it until I see the SBV moving towards zero, MVO becomes zero, and Stochastics with RSI are in decline after being above 70 and 80 respectively. The biggest danger (on my point) for mid-term up-trend could come from the big volume surge we saw on Friday (February 1, 2008) – this volume surge can push market lower…
Coming down to lower frame, to the 15-day chart (for a luck of time I’ve have not posted the snapshoot) I may say that in short term I’m not as optimistic as in mid-term. There are some strong indications that we may see down-move… It could be for a few hours, it could be for a few days… Short-term chart are very dynamic and they should be monitored in real time…
