Sunday, December 30, 2007

S&P 500 charts

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By following the last post strategy and comparing 1-year and 60-day technical indicators (as you may see in the last post) we may see that 1-year S&P 500 chart is not as optimistic as it was a week ago. As I mentioned the 60-day chart had some indication of the possible correction and we saw the decline.

I like to compare several timeframes. In many cases smaller timeframes help to spot important events that are not visible on the bigger timeframes. At the same time bigger timeframes give more of a general picture of the trend. I believe that technical analysis cannot be based solely on one chart view or one technical indicator. In my opinion, several indicators should be considered as well as several time-frames should be analyzed.

1-year chart would be pointless to use to see when the index may be expected tomorrow, but rather may be analyzed to see when we can expect to see index over the longer term of several weeks. 1-year chart is based on daily bars and basically it’s a set of end of the day technical indicators.

1-year chart

If you take a look at 1-year S&P 500 chart now, you may see that volatility index VIX started to advance and that would not be in favor of the up-move. On the other hand SBV is still positive and still advancing. In addition we still have not seen big volume surges to the price move up. The last big volume surge was in period from November 6 to November 23, 2007 when the S&P 500 index dropped almost 7% (see last red MVO and then later absence of this indicator). Overall this chart is still bullish, however the rising VIX is not a very good point, especially taking into an account the fact that lately the market was very volatile and we saw a sharp trend reversal.

SP 500

60-day chart

60-day chart has 1-hour bars and may tell when we may expect an index in several trading days. In many cases this chart reveals intraday points that could not be seen on the yearly chart, yet, it still covers the big period of time (2 months) and in many cases allows a more exact analysis of reversal points.

I may say that the 60-day S&P 500 chart is not very optimistic.

There are several factors that make me worry and in my opinion would point to the bigger possibility of the further slide down:
1. The declining SBV shows that the process of the volume accumulation during the S&P 500 slide is not over yet. Only after it starts to rise again, I may say that it hit its oversold bottom. Until then, it’s bearish.
2. We see high MVO on December 21, 2007 that points to the big volume surge during the index move up (see green MVO). It’s no doubt that that day affected support/demand balance and was one of the reasons we have a decline since December 26. Now we may see the beginning of the growing volume during the index drop – MVO is minus 5. It would be nice to see bigger negative MVO before reversal.
3. The difference between Advances – Decline volume show small rise, by indicating that there is a possibility that advancing stocks could become more actively traded then declining stocks. It would be nice to see this technical indicator growing further, which would indicate that more traders started to focus on advancing stocks.
4. The difference between Advances – Decline issues started to rise. That would point that the number of advancing issues started to grow and we close to the possible bottom that may lead to reversal. Yet, the number of the decline issues is still big. This indicator starts to turn bullish (unless we see it starts to decline again) and may indicate the possibility that other indicators may change the mood as well.
5. RSI is again dropping after being above 20 and it shows that there is still dynamic to the downside. Until we see that average gains started to grow this indicator is considered bearish.
6. The stochastic again below 20 indicating move down to the most recent lows. This indicator could be considered as bearish at this moment. It would be nice to see it growing back above 20 to consider it bullish again.
7. The volatility index VIX is grooving since December 21 and this is not very good for up-move.

SP 500

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