Low Trading Volume

One short trading week on light volume is behind. Another short week is still ahead. As a rule, Holiday season is marked by low trading volume and the current period is not an exception. Last week in my "Index Analysis" post I have mentioned a possibility of move down - that what we have got. Now the situation is a little bit opposite and I would say that looking at my technical analysis I see some higher odds of move up. Again, the same as last week I did not expected strong movements, I would not expected a strong rally during the next week either, mainly because of light trading volume.

Merry Christmas

I do not know how many people read my blog, still I wish everybody happy Holidays.

Merry Christmas to everybody! I hope that people still remember that this day is not about Santa Clause (St. Nicolas) only but more about faith, hope, love and our salvation. Let's forget for a moment about all the bad stuff we had in the past. Whatever we lost (not only money) could be found again as long as we do not lose faith, hope and love.

MERRY CHRISTMAS!!!

Index Analysis

Four weeks ago in my DJI post (on 11/23/2008) I have posted the following chart with statement that the market has set new support. I would like to point again to the same DJI chart:

After 10/10 support (October 10, 2008 support level) the stock market and indexes did moved flat for a month until November 5, 2008 when they started to decline again. Now, it is a months after 11/21 support (support on November 20-21, 2008) and the logical question could be "should we expect to see reversal soon since there is a possibility that the stock market has stepped back from it's November's extremely oversold levels and accumulated some Bullish volume in December?"

We had first strong volume surges with  setting a support level on September 18, 2008, second on October 10, 2008 and the third one (most recent) on November 21, 2008. Each of this volume surges during the index declined pushed the indexes into oversold condition and every  time market become oversold stronger and stronger. If on September 18, 2008 the market reacted on high volume by strong one-day rally up (about 10% in a single session), then after 10/10 bottom (market was stronger oversold) the reaction on high bearish volume was expressed by 1-month up and flat move with about 16% recovery. The last time, on November 21, 2008, when after high volume surges the stock market has become oversold even stronger then on 10/10, the market respectfully reacted stronger - we have one month up move and indexes (S&P 500, Nasdaq 100 and DJI) with 22-25% recovery.

The market is still could be considered strongly oversold because of the high Bearish volume on 9/18, 10/10 and 11/21, yet, I would weighted it as longer-term oversold condition. Over the shorter term we see some overbought levels - should not be a surprise with more than 20% up over a month - which may push indexes and whole market down, not necessary into another crash, yet on my opinion we may see an attempt to retest 11/21 bottom.

I would never try to guess what is going to happened to the market in several month or in a year - this is a job for fundamental analysts. What I do: I track if there is possibility of trend changes in the shorter term and then I monitor these changes for a possibility of developing them into stronger recovery or stronger crash. Right now, I see that indexes (S&P 500, DJI and Nasdaq 100) signal a possibility of the move down (keep in mind that I could be wrong, I'm just an average trader). The S&P 500 chart below explains my worries (Nasdaq 100 and DJI charts have similar look):

Last week, in my S&P 500 Analysis post I mentioned that red MVO (volume surge during the price decline) may push the S&P 500 index up (we had up-move this week). Now, my main concern is that green MVO (volume surge during the price advance) may push the indexes down. The rest of technical indicators, including Stochastics, RSI (Relative Strength Index), SBV, McClellan Oscillator are bearish on this chart as well.

Automakers Bailout - Good or Bad?

Automakers received what they wanted. I like the requirements that were put on the them in relation to the UAW. I already mentioned last week and today's news and Government action confirmed that UAW is the main reason why the auto business has be become unprofitable. I still afraid that this bailout could become a waste of money. I'm still not convicted that it would not be better to spend these $13B on the development of new productions that would create working places. Example: $1B is required to build a plant for production of Lithium batteries for cars - there is zero of such plants in USA and 14 in China..

It looks like today's market reaction on this bailout was not very happy. Positive sentiment at the market open fainted very fast with DOW below zero by the end of the session. I think many investors are looking at this bailout as just a delay. What is next? GM and Chrysler already told that these money would be enough for a month only. It means that in January 2009 we have to expect them to step forward and start begging and threatening again. The Government attempted to delay bailout and that tells me that the Government considers it extremely risky "investment" after looking at the numbers they have and Bush statement "Preventing disorderly bankruptcy" makes me expect orderly bankruptcy instead.

S&P 500 Analysis

I have stated in my last week "S&P 500 Chart" post about a possibility of breaking the November 28, 2008 highs and that this could mean that we will not see indexes moving down to November 21, 2008 lows soon. This week we saw the indexes (Nasdaq 100, S&P 500 and DJI) moved above these levels. After that the S&P 500 and DJI dropped back below the November 28th High, yet, the Nasdaq 100 index still stays above this level.

A week ago (read my previous week post) we had a short-term overbought market and three negative sessions during the past week confirmed it. Right now my technical analysis is more optimistic than a week ago. The current week decline released the indexes from the short-term oversold conditions, if not fully then at least partially. Red MVO and SBV on December 12, 2008 (see chart below) confirms that: red MVO indicates high volume activity (volume surge) during the price decline or "panic selling", red SBV indicates the Bearish volume accumulation (negative money flow).


Overall at this moment I see more Bullish signals than Bearish. Stochastics, MACD, RSI, SBV on my chart rising, VIX (volatility  index) declines - all of this in the favor of the up-move. The exception is McClellan Oscillator which declines and which is Bearish.

The market is still highly volatile. If a year ago 1-2% run in either direction was a big event, right now we consider it as quiet session. The highly volatile market require constant monitoring and I would not recommend rely on my weekly analysis simply because the sentiment in volatile markets changes sharply and only monitoring charts during trading hours may help spot the reversal points in time. I'm sorry, I cannot do any posting during the week - there is other stuff that has to be done.

Recession and Bailout

As I told before one or another way the Automakers will receive the money they crying for. Do they really need them? If their business has become unprofitable the bailout will not help but only will delay the dead end. How to become profitable - almost impossible because for that the wages has to be cut in half and autoworkers union will not let to do it, they would rather let it crush than give their power away. I think that after automakers receive money they will continue to layoff people and ask for more money. It could be the best to let it go. Yes, some companies will crush, yet, if there is a demand on the cars, somebody will replace them. If there is no demand on the cars then no bailout help them - it's simple - then it's only waste of time and waste of money. The excuse that other businesses will be damage is wrong. Only those businesses that oversupplied the market will be damaged. If people stop buying new cars then they will start to repair the old cars, that means that there is still going to be demand on the car's parts and it is going to boost new repair businesses which still will need car parts. Yes, some drillers will be shut down, but do we not need so many of them?

Recession is a process of "natural selection" when overweight animals die. This is not the end of the evolution. When lazy, fat, spoiled animals die it clears pass for new blood, for strong, creative, not spoiled youngest who desire to work and get to the top.

$60 Billions is $10K for 6 million people - it's about 4 million families (about 10 millions people) may survive for a year. Think about that. Instead of helping the dying from extra weight animals these money could be spend to help people to survive the recession, to boost new businesses, to create new jobs.

S&P 500 Chart

Let's put aside automaker's business and take a look at technical analysis to see what indicators tell us. Overall, the hourly charts (1 bar = 1 hour) are similar on all major indexes (NASDAQ 100, S&P 500 and Dow Jones Industrial) and majority of the indicators are pointing to the dominance of the Bullish sentiment. The question is, for how long? Until the November 28, 2009 high is hit?


There is no doubt that the market has set new support level on November 21, 2009 (see my "DJI Analysis" post) and it looks like November 28, 2009 high is another sensitive point that should be watch closely. If the indexes break this high and move higher, there is a possibility that we will not be back down soon. Yet, if this is not the end of recession and the market meant to be even lower, most likely we will see bounce from this top with further attempt to retest the November 21 support.

So far the indicators are Bullish, however the recent recovery has pushed the stock market into the short-term oversold condition. The market is still very volatile and what seems today Bullish may turn into strong Bearish tomorrow. That is why I still consider monitoring charts during the trading hours as very important part of trading. This is not a time when you can come to the chart once a day after the market closes or once a week. I do not believe in the mid-term trading now either, you may trade short-time or for long-term investment you may use simple strategy "Buy every time you see big volume surges during the decline".

$25B

By some reason I have high degree of confidence that automakers will receive their $25B. The only thing I think they are doing now is looking for a "wrapping paper" to sell it to taxpayers under an umbrella that it is done for their own good - the same as with finacial sector bailout.

If you have a company and you have to pay your loans and debts and you have a product that you cannot sell then you have to find out how to survive. First thing you have to do is to sell the product you, at least part of it and get cash. If you cannot sell it, then you drop the price and sell it any way. You receive cash and it will buy you some time to restructure your production to make it profitable again. If automakers cannot do it then there is something very bad in their structure of business and $25B will not help them, it will only delay the death sentence… unless they need it for something else… as banks used bailout money to buy other banks…

People do not have money to buy cars and nobody wants to lend to people because they already in too big debt, house foreclosure or without job. You want to sell cars, drop the price.

What government can do beside $25B to help automakers on my opinion is

1. Increase taxes on the cars that are made oversea – you have to protect your own market.
2. Increase taxes on American cars made outside of USA – it is wrong when USA owned companies build plants in Mexico to sell product in USA.
3. Decrease taxes on the cars that are made in USA by American workers even if this is not American cars – it should attract overseas investments
4. Decrease taxes on the cars that are made overseas if 80% of the car is made from the details produced on the plants in USA – invite overseas companies to buy supplies made in USA.
5. "Layoff" union. Here government can make a compromise and give authority to the company over the union with power to close it if company guarantee that 100% of its employee have medical coverage. Union is "business killing" machine that constantly working on production cost increase and development slowdown.

There could be other points, yet, I doubt the government can do even any of above. And it is not only about car. I always frustrated when I see something in a store that is made in China but made from American material. Why is it more profitable for Chinese businessman to buy supply in USA, ship it to China, make product, ship it back to USA, sell it in USA, pay taxes in USA and China. Why does Chinese businessman not buying supply in USA, make product in USA, sell it in USA and pay taxes only in USA? Isn’t there something wrong in this chain?…

S&P 500 Chart

Are you still hesitating that volume works? Read my "DJI Analysis" post a week ago and take a look where the indexes are no. There is one rule in volume based technical analysis that every trader suppose to know: "Do not play Short on high volume surge during the price drop". I'm not even taking about opening a long trade or analyzing volume to see where the trend reversal could be expected. This is the first rule. If you are in "short" and price goes down and you see big volume surge close the position. Yes, you may win less but you will not lose a lot on sudden and strong reversal.

I'm wondering what technical analysis with exception of volume based technical indicators pointed a week ago on the high possibility of strong reversal. News and fundamental analysis are negative all the time: refuse to bailout automakers, request for another $800 billions of "rescue package", growing unemployment, dropping consumer confidence... Try to find at least one positive factor.

The logical question could be put is "Could S&P 500 20% and DJI 18% run mean the this is the end of the Global Recession?". My answer is I do not know and technical analysis will not answer you where the Stock Market is going to be in 2-5 years. The science of technical analysis has been developed to analyze stock market trends and flow of the money (volume) in order to spot overbought and oversold condition which could could lead to the trend reversal as well as to define technical indicators that may confirm the reversal on its earliest stage. I do not believe in technical analysis for long-term trading, yet, I believe it could be used for mid- and short-term trading because these timeframes less affected by politics.

Any way, let's go back to our technical indicators to see what they forecast.


We can see some oversold levels on many indicators which is a result of strong up-move over that past week. You may see that SBV shows a lot of green, RSI and Stochastics are above 70 and 80 lines respectively, Advance/Decline Oscillator has a lot of green as well - all of these indicats overbought market at least in short term. However, even these indicators are overbought, only McClellan Oscillator is strongly Bearish - it crossed zero line. The rest of technical indicators still point to Bullish sentiment, which, however, could become Bearish any time. Yes, I see some indication of possible move down and I' would closely monitor charts over the next couple of trading session especially on intraday levels to see if the market start dropping towards the November's bottom. Even If we see that move down I would not expect to be it very deep at this point of time. I would like to see some Positive (green) MVO (high volume during the price up-move) that would indicate some greedy buying before.

If I believe that the market is still Bullish and it still may go further up, yet, there is growing possibility of having at least a correctional move down, that means that especially now I would consider some trading strategy that would protect achived profit.

Another Bailout?

Another bailout? Can anyone explain why do we need it? Is this the beginning of the end? The explanation that banks need to land money to people so they can borrow and spend more because when the people spend it stimulates economy does not explain how we are going to recover from the crisis. Put people in bigger debt is not a solution, but only delay of worthier. People do not have to buy a car every new year just because new model has GPS and the next model has DVD - it is an automaker who has to look how to improve technology and reduce the cost - it is an automaker problem to find a new markets...

It is not a consumer problem that a producer oversupplied the market with unnecessary, uncompetitive and overpriced product. My answers to the banks is "Stop putting people into the debt - it will crush you. You may not survive on the debts of others. Work on how to make people rich and you will be rich".

This bailout looks scary for me. I have feeling that banks uses the first bailout not what it was set for and now they need another package. Increase our national debt by another trillion? What is next? - Selling Alaska back to Russia?

Support

As a confirmation of my yesterday statement we had today continuation of the recovery rally. The DJI and Nasdaq 100 indexes are almost 13% from the bottom while the S&P 500 index moved up for more than 14% in two trading sessions. As you may see, in spite the horrible news about automakers the stock market gave us strong rally up. Why? - because of the huge volume surges that stopped decline and reversed the trend. As I mentioned yesterday huge volume during decline means that we have the bottom when the price is so low that it become attractive to the institutional investors who started to buy in big volumes by satisfying demand of the retail traders selling in panic.

Is this the end of the recession? - I do not know. I think it's too early to discuss it. In short term I would expect to see further move up - at least my technical analysis show this possibility. On the other hand 10% profit should make any trader to think about profit protection strategy (trailing stop for instance).

DJI Analysis

Another bailout - another crash? On my opinion the indexes moved down under the high Bullish volume (greedy buying) seen on October 29-30, 2008. Strong rally on October 28 inspired investors and they started to buy (see green MVO on the chart below). Yet, not for a long. Many investors are still desperate and on November 20-21, 2008, after the indexes dropped below the 10/10 (October 10) support, wee see explosion of the extreme panic selling (see the same chart below). Most likely this panic selling did set new support level.



I always point to the importance of understanding volume surges. The main rule that is usually forgotten by many traders is that volume is always two side transaction and when you see volume = 100 shares it means that somebody sell 100 shares and somebody bought these 100 shares. When we have volume surge and volume = 2.6B (daily DJI volume on 11/21/2008) that mean that some investors decided to buy 2.6B shares from those who were selling them in panic. No doubt that this extremely high volume indicates that now panic sellers have 2.6B shares less to sell and as a result there are less sellers on the market to push it further down.

How many of investors in panic is still on the market - I do not know. There still could be a lot of traders willing to sell stocks they have in panic or sell stocks short in greed. I know one thing - by tracking volume I may clearly see that big money bags (big institutional investors) were buying on September 15-19, they were buying on October 8-17 and they are buying now. The huge volume surges in these periods means huge number of shares moved from one group of investors to others. Only long-term investors have such big money to buy in such huge volumes. The big investors use simple trading strategy - each time they see new bottom, new low bargain price - they are buying. The same that everybody suppose to do with IRA and 401k accounts - each time you see huge volume surge and new low - invest money into your pension - follow big money. If you do not believe me look at the news and check what Arabian and American billionaires are doing...

I think that November 20-21 has market the new support level which is confirmed by high volume. I do not expect the stock-market be below this level soon. It is not necessary the end of the global recession, yet the huge volume seen over the last couple has to be processed and it take's time.

It was about my view on long-term investments and long-term technical analysis. About shorter-term I may say that my technical analysis at the current moment is positive:

- SBV is moving up by showing the buyers coming to the market;
- MVO shows high volume surges during the indexes decline;
- Advance/Decline Oscillator show heavily oversold market and moving up by indicating the changes in the sentiment;
- MACD, Stochastics and RSI are mowing up which is positive sign as well;
- McClellan Oscillator is neutral by moving flat around center zero line.

All my points could be seen on the DJI chart above. The S&P 500 chart has the same picture and results of the S&P 500 technical analysis is basically the same. The Nasdaq 100 technical analysis show stronger oversold levels. 10/10 (October 10) low has been broken a few days earlier and we may expect to see stronger up move on this index.

Again, this is my technical analysis and I could be wrong. I may recommend only one thing - do your own analysis.

Another bailout?

Another volatile week is behind. I did not expect the market to retest third time the 10/10 (October 10, 2008) lows, yet it is forth time when we see rebound from this level. That is why it's important to monitor charts on daily basis, especially in these volatile days - if I made mistake I have time to reanalyze and correct yourself.

I believe there is no doubt that 10/10 high volume stopped the crash and set support level. From that time we have seen volatile swings between October 10 lows and October 14 highs. Some of the indexes dropped slightly below the 10/10 support (Nasdaq 100) and some of the indexes are moving flat on and above the October 14 level (Dow Jones Utilities).

I believe many investors asking the same question "Will automakers crisis push the market into another crash?". This is another political game and I do not know. My opinion is that what we see now is a direct result of financial bailout. We did bailout banks and now we started to discover that the financial sector did not suffer as badly as it was described - they use bailout money to buy another banks. As I understand, if they do it they were not in the need of cash to be saved... They needed the cash because now when the market is in the bottom it's good time to buy... Now automakers started to follow this example. If you do not bailout us we will crash you - doesn't it remind you something????

I was against bailout of financial sector and I'm against bailout of automakers.

This is my word to you automakers: "DO YOU NEED MONEY? DROP THE PRICE ON THE CARS BY 20% - YOU WILL GET WHAT YOU WANT. IF IT'S NOT ENOUGH THEN DROP THE CAR PRICE BY 50%". When I drive on the street I see thousands of cars in hundreds places. It tells me that you have an asset that you may sell to taxpayers and cover your losses caused by your bad management instead of threatening and asking taxpayers to bail you out... But you won't do it... You do not even think what has to be done to save this industry, what you think is how to get easy money...

S&P 500

In my previous "DJI Chart" post on November 2, 2008 (a week ago) I have described the possibility of the slide. The market was overbought in short term at that time and during this week we shad two session of the slide (November 5-6). I think some trader are worried if this slide is going to continue to the 10/10 (October 10) lows.

I would repeat myself that over the longer term I'm still bullish and this slide did not change any of the technical indicators I use on the higher-timeframes (1-2 years charts) - all of them are still bullish and all of them point to the higher odds of the further recovery. Yet, the question about the retesting of the 10/10 lows is not about longer term. I would rather consider it as a short-term question.

In short-term, the technical analysis applied to the 60-day chart (1 bar = 1 hour) is more bullish than bearish and I would expect to see short-term up move within the next few sessions. If a week ago I saw the short-term overbought indexes, today I see short-term oversold market.


The technical analysis applied to the S&P 500 index above is the same as it would be applied to the Nasdaq 100 and Dow Jones Industrials indexes. At the current moment all three main indexes show similar sentiment:

a) We see Bearish volume surge - red MVO which already equal to zero - This Bearish volume may push the indexes up;

b) Advance/Decline oscillator is rising and is above to cross center line. This suggest that investors are moving towards advancing stocks - they are buying;

c) MACD is moving up which  is indication of Bullish trend;

d) RSI and Stochastics moved above 30 and 20 levels respectively which is bullish sign as well;

e) McClellan oscillator started to move up which is a good sign for up-move, yet it still below zero line which indicate bearish market;

f) SBV show small advance, yet, this advance is too small to consider this technical indicator bullish.

Overall, in short-term I would expect an up-move rather then further drop towards the 10/10 lows. Again, the market is still very dynamic and volatile and today's bullish sentiment can reverse very fast. Because of that I would recommend monitoring charts every day.

DJI Chart

It was a nice week. The indexes climbed close to the October 14th highs (especially Dow Jones Industrials).

Twice the stock market tried to brake the October 10th lows, yet it is second time up and second time the investors are asking a question "is this the end of the recession and the market will go up or this is just a break before further crash?"

You may remember from my previous posts I stated that 10/10 (October 10, 2008) high volume surges had to stop the market from its panic slide. At the same time I stated, that only when I see the indexes moving up above October 14, 2008 highs I may more or less consider the possibility of the end of the stock market crash. I still belive that the huge volume we saw during the crash could mark the bottom of the crash. We have number of facts that points to the end of the crash: the market is heavily oversold - many technical indicators on the higher-timeframe charts (1.5-year, 2-year charts) show it; there are not many traders left who sell in panic - the fact that we did not see extremely huge volume during the first and second retest of the 10/10 lows confirms that. Yes, I think the stock market has all reasons to move up, yet, it's still close to the bottom and the market is still volatile which reveals that the market is still weak and we still may see changes in the sentiment. Overall, I consider myself bullish over the longer term and October 2008 was a good month to invest into the IRA and 401K.

Even I'm bullish in longer-term, shorter-term charts are showing that we start to see some indication of the overbought market in short term. From the chart below you may see high volume during the recovery on October 29-30, 2008. There could be 2 explanation of this volume surges: a) traders who are in panic and still did not close position on 10/10 decided to exit the market with smaller losses; b) greedy short players started to sell short by expecting the resumption of the recession. I do not think that those traders who bought on 10/10 from panic sellers ware selling now by the following reasons: a) 10/10 volume is extremely big and it tells that those traders were long-term players (short-term traders do not have such big bags of money); b) these traders were buying not just on 10/10 but every time we saw red MVO; c) the volume during recovery on 10/29-30 is relatively small if we compare it to volume surges during decline. I still consider this bullish volume may push the market down at least in a short-term. Other technical indicators are in similar short-term condition: SBV, Advance/Decline Oscillator and Stochastics show overbought market, yet are still bullish; MVO, MACD, RSI and McClellan Oscillator show bearish sentiment and possibility of move down


The 60-day technical analysis applied to the Nasdaq 100 and S&P 500 charts show similar to the DJI analysis results you may see on the chart above.

Even shorter-term charts show the possibility of slide there could be a scenario when these indication could be ignored if the market is under the influence of the longer-term trend. If this is the case and the market will move up, then it will confirm that the 10/10 bottom could be the bottom of the recession.

What is next

Sorry, no time to make any post during the week... This is not something I use to make money - I use it to put my thoughts in the order. I believe every trader knows that there are periods in the trading when you want run into the forest, find the dippiest hole, hide your head in and wait for a miracle. Usually such moments end with the portfolio crash.

To keep myself in the shape and avoid such situation I have this blog. The obligation to have at least one post a week make me to keep my head clear and to watch the market without emotions. If you see that you may not control your emotion, start a blog. The filling that somebody read what you write will make you to be unemotional and that may help you in trading.

Now, is not a moment for me to run into the forest. I'm happy. If you look at my previous posts the last two days I see exactly what I expected. Telling the truth the market exceed my expectation (see my previous "Nasdaq 100 chart" post). Even today's drop at last 10 minutes of the trading session looks promising (take a look at the volume during these 10 minutes...)

What is next, so far all my indicators are bullish and are pointed toward the October 14, 2008 highs. In such volatile market, the indexes especially the DJI may do it in a single trading session. As I mentioned several times before, only when I see that these highs are broken I can more or less be positive that what we saw on October 10, 2008 could be the end of the stock market crash. Again, I repeat, market is extremely volatile (watch ATR) and if you do not have ability to monitor charts during the day it's better to stay out of the market, unless you would like to invest into long-term (401K and IRA), last week was a good time for that (read my previous posts)...

See more in my weekend post.

Nasdaq 100 chart

I do not know where the market is going to be in a month. However, I'm sure that this not the end of the world and the market must be up  in a couple of years and much higher than it is now. Yes, we could be at the bottom of the recession, yet, as I told before I would not even think about it until I see the indexes moving above October 14, 2008 highs.

I do not know when the market will be even in a week. I such volatile days I can have some degree of confidence in the coming day only. That is why I do my home work on daily basis - I do my technical analysis every day. From the chart below you may see that my 60-day technical analysis looks positive at this moment - the SBV, MACD, RSI, Stochastics and McClellan Oscillator are moving up. Yet, the Bullish sentiment can turn into Bearish on Monday or in  a couple of days... So, watch out... Do not trust me, but do your own home work.

 The technical indicators on the S&P 500 and DJI charts look similar to the Nasdaq 100 technical indicators.

Longer-term charts (1-year, 1.5-year) suggest the high possibility of the strong mid-term recovery. However, it's difficult to say if this is going to happen tomorrow. We already saw that the stock market ignored the extreme panic selling in the middle of September - something very unusual for such huge volume surges. The investors were ready to come into the market and those volume surges witnessed that many traders started to by and that is why we had 10% run up in a single session. The only explanation of sharp change in the sentiment from Bullish into Bearish again I see in the "Bailout news". On my opinion the games around it pushed the market down again.

Will the market react healthy on the current Bearish volume and will go up? I hope so... The history shows that the market always react on huge volume during the price drop by a strong recovery. Yet, what surprise our politicians are hiding? New President will come on the throne in a couple of days... I hope the tax increase will not be his first bill. I'm not against tax increase, but not now. Now, when all businesses are suffering from the crash on the stock market and crash in the financial sector, now, when all businesses are trying to survive, the tax increase may completely destroy them and push the market in so deep recession that we may forget that USA is the world leader... Later, when the economy is stabilized, become healthy and growing, maybe... Bu not now...

I think there is the possibility that the market may wait to see who the new President is and what his intentions are. Nobody wants to invest in a company that may file bankruptcy in a month because of sudden additional expenses (increased taxes) that could be put on the company's shoulders in such difficult time (when the market is in the deep recession).

Long-term investment

In my last "S&P 500 Chart" post the technical indicators were positive. We still had the positive market on Monday, yet, on Tuesday the sentiment turned into the bearish and by the end of the week we had third attempt of the market to break the October 10, 2008 bottom. The Nasdaq 100 index did pass this support level, however the S&P 500 and DJI indexes stayed above. One more time I would highlight the importance of monitoring chart on the daily basis. In such volatile market the sentiment changes very fast and if you are not watching, your yesterday's winning trade could be in deep loosing situation today.

I have already mentioned two weeks ago in my "Stock Market Crash Analysis" about the importance of the high volume surges. Now, you may see that I was right and the high volume surges did mark the support on October 10, and this level has become very sensitive for many investors.

What we see now looks like normal market behavior in the support corridor:

1. The market hit the Bottom on October 10, 2008 and high volume surges reveal us that a huge number of panic sellers left the market by selling their investments. The volume was extremely big and it tell us that the same big number of shares was bought by other investors (volume is always two side transaction - if somebody sold then somebody bought from him).
2. Those investor who bought on October 10 did not sell yet - we have not seen any volume during the price advance that would be even close to the volume surges on that day. That means that those buyers are still in the market and they are not in panic yet. Their positions are not in the red zone - the indexes did not drop below October 10 lows.
3. It looks like not all traders who are in fear were hit on October 10. Many of them started to sell after October 14 when they saw better price to cut losses, by pushing the market down to retest the support level.
4. On October 14 again, new investors decided to start buying at bargain and again we saw volume surge which was, however, smaller than the one on October 10. That tell us that there were no as much panic sellers as before.
5. And again after October 20, another panic seller who still did not cut losses started to push the market down.
6. And again we see smaller than before volume surge that stopped them at support level on October 23, 2008.

So, what's now? The market may go up, there are not a lot of sellers who is in panic - big part of them already left the stock market on October 10. The market can continue to fluctuate around this support level until all who is in fear leave the market and more traders become attractive by low priced stocks. Or, we may see a new surprise from Government (as we had before with bailout) which may push market again deeper down.

I will repeat one more time what I was repeating over the past two weeks. This is a good time to invest into pension - for a long term. The stocks are underpriced and sooner or later thy will cost much more. Some of the stocks could double or even triple over the couple of years. Of course it's bad idea to invest all you have now. You may divide it in 2-3 portions and if the market is still going to drop you just wait for another volume surge and invest another portion of your portfolio into IRA or 401k. This is very simple principle of long-term technical analysis - Every time the stock market crash and you see big volume surge you start to invest.

Tomorrow, I'll try to post a chart.

S&P 500 Chart

As I mentioned in my previous "End of the market crash" post on October 13, 2008 in majority situation after the strong bounce up we may see the attempt of the market to retest the support levels and later this week we witnesses such drop down when on October 16, 2008 the Nasdaq 100 hit the October 10 lows and the S&P 500 and DJI indexes went down close to it. Yet, after that we saw bounce up again and the indexes are still on its way up. I think the question that I put last week "if this is the end of stock market crash" is still not answered. The same as before I would state that October 10, 1008 has put serious point to consider the trend reversal. We had huge volume at that day, the market is in extremely heavy oversold condition, strong rebound has confirmed that market can run up very fast very strongly... All of this make me to consider the high possibility of strong reversal and if not the end of the stock market crash then at least strong mid-term up-trend. Yet, as I mentioned before, I would like to see that the October 14, 2008 highs are broken and the indexes are moving up above them as confirmation of that. Still, for long term investments (401k) I consider that this is good time to buy on such volume when the indexes are so deep down. Even if the indexes will go lower then on the high volume at better position you will buy again. Over the long term the returns from the multiple positions should be rewarded.

Going back to the short-term chart, in my case it is 60-day S&P 500 chart, I may say that the technical indicators are more or less positive and my technical analysis tells me that we still may see some up move. It's difficult to say where the market is going to be in a week. I such volatile market (VIX Volatility index is above 60) we may see strong change in either direction any time. At such time it's especially important to monitor charts on the daily basis. For those who cannon watch charts daily, yet, still would like to make short-term trades I may suggest one thing only - stay out of the market until the volatility is down, your time will come

The S&P 500, Nasdaq 100 and DJI indexes show similar pictures. The reading of the technical indicators on all these indexes are pointed in the same direction

 - SBV, MV, Advance/Decline Oscillator, RSI and McClellan Oscillator are Bullish
 - MACD and Stochastics are bearish

Overall, more points are in the favor of the further recovery.

End of the Market Crash?

Isn't it a good day? Read my Friday's (Stock Market Crash Analysis) post. Yes I expected strong run, but this rally up exceeded all my expectations - DJI run 11% up, S&P rally 11.5% up and the Nasdaq 100 has made 12,5% profit. S&P 500 and DJI have recovered from more than the half of the last week losses and the Nasdaq 100 index almost made to the October 3, 2008 close.

I had bullish feeling and I was reworded. Yet, let's not forget the lessons of the past by following the golden rules: protect the profit and cut losses. Even I'm still in Bullish mood and even all my technical indicators point to the continuation of the recovery, it is a good strategy to have trailing stop set.

I do not post any chart today, as I mentioned all my technical analysis is bullish at this moment and I see the odds are on the side of the further up-move. The fact that the market ignored huge volume and oversold levels in the middle of the September tells me that there is a possibility of the indexes running to this level. Yet, before that the indexes has to run over the September 29th, 2008 bounce level.

I believe the main questions many traders are asking now is "Is this the end of recession?" My answer is "I do not know...". Yes, it could. During the recent crash a huge amount of money left the market. Friday and today we saw that the investors started to buy by pushing the price up. I would say we will see how the recovery develops. In majority situation after the strong bounce we may see the attempt of the market to retest the support levels and today 11% run up is not a complete victory on the recession. I will say that the recession is broken only when I see after the first recovery run a down move and then reversal which would beat the first recovery run highs.

Again, as a mentioned in my previous post if you are long-term investor and for you it is not very important where the indexes are in a month if over the long period (several years) you are in profit then you use each drop to buy. Friday October 10 was a nice day to buy in long term (see my previous post). Even if the indexes drop lover in a month, then you will make just another injection into your 401k and IRA accounts. If you wait when the indexes are back to the July 2007 highs and then start to invest into your pension funds I may guarantee that over the long term your pension will be broken.

Stock market Crash Analysis

Friday was a nice day. The sentiment become positive and it happened on the high volume. See the DOW Jones Industrials chart below.


As I always state, I associate the high volume during the price decline with panic selling and extremely high volume with extreme panic. We already had the huge volume surge in the middle of September 2008 (see my "DJI Chart" post) which marked the end of the crash (on my opinion) at that time. I still convinced that it would be the end of the crash or at least a very solid bounce before further slide. Yet, the market dropped further down by ignoring the highly oversold levels. Why? - I think only because of the bailout (see my "Wall Street" post). When you show a "candy" to a spoiled kid you have to give it to him otherwise the child will black mail you. That is exactly what happened, credits were frozen and the kid received what he wanted...

One more point into the the favor of protecting profit strategy. We had a strong bounce on September 19, 2008 (only one day), however the reaction on the high volumes in September was not as strong as I expected, yet strong enough to be in profitable position. This situation show importance of the protecting profit - those who did not a set trailing stop instead of winning trade could end with loss.

The same is now. We have second wave of the extremely high volume - huge amount of shares changed hands - somebody was buying from panic seller in huge amounts... That tells me that we have very good chances of the strong bounce up. This week high volume together with unprocessed volume surges we had in September can push the market significantly higher. The stock market is extremely heavily oversold. Now, we saw some light when the buyers were dominant on the market (Friday's afternoon) and based on what I see I think this could be a begining of strong movement.

Yes, I'm positive - my technical analysis shows that on Friday we hit some bottom. I'm not telling that this is the End of the stock market crash and now only bright days are ahead. What I want to say is that there is a high probability we will see up-move as the reaction on the high volume surge. Will this bounce grown into the long-term recovery is another question, which would be premature to discuss now. That is why if I have opened a long position I set a trailing stop to protect a profit.

For long-term investment (IRA, 401k) I may say only one - you bought last month on the decline and high volume and now you buy lower on the decline and high volume again. If the market in a month is lower and you see high volume you will buy again. If you are long-term investor you will be reworded. If you do not know what to buy then invest into the indexes - the weak companies are dropped from the indexes and on their place come stronger ones and you do not have to do a research to find out what companies are strong.

Stock Market Crashes and Bubbles

I'm for the free market, yet, it does not mean I'm against regulation. We live in free country and we have police, we have court, we have law, we have army... We need all of these in order to protect the freedom. The same is with stock market. We have free trading, yet this free trading has to be protected. That is why I vote for regulations.

The Wall Street was created to support economy and to help it grows. It looks like now it's opposite - the economy has to support the appetite of the Wall Street and when the economy fails to do so we have stock market crash. That is why we need regulations. The stock market is not as it was a century years ago, it's not even as it was 10 years ago. The volume traded on the US stock market more than doubled over the last 10 years. Did the economy become better??? Maybe... but I'm not sure it's twice better as it was a decade ago... So, what is the source of increased trading volume - my answer is speculators (which includes me as well). That is why I think this is a time for some increased regulations against speculators (against me). When the market becomes driven by speculators and not by economy then the Wall Street may destroy the economy - this is my opinion.

Right now, I'm talking not as a trader, because what I'm taking about is against the trader's nature. The greedy buying and especially panic selling has to be under the control of the regulations. Otherwise we will have bubbles (like internet bubble in 2000) followed by stock market crashes. Nobody talks about that, yet we had bubble again and now it was in the mortgage sector. Because the mortgages became tradable commodity the demands on them increased and when the economy was not able to support the Wall Street demands the mortgage bubble has collapsed...

We will not be able to avoid bubbles and crashes. This is the nature of the free stock market. By having bubbles and crashes the stock market self regulates itself by helping the economy to move in the right direction. However, the free market is very attractive to the speculators and that is why the regulations are needed, without them we will have even bigger bubbles and more extreme stock market crashes. Especially more extreme crashes, why, because a speculators make more and faster during the stock market crash (market is more volatile).

The economy has to be protected from the situations when speculators are selling short stocks (stocks they do not have) in huge numbers - this creates a demand on the bear market and may turn a healthy down-trend into the global disaster. How to do it - this why we have government and all the institutions including SEC. Yet, it looks like they do not work in this direction... From my side I may say that even simple rule may help. For instance "In situation when the DJI drops for more than 3% in a single session, none of the traders or funds managers should have more the $10M in short position within the next week. Those traders who has more than $10M in short position on the moment when the rule is triggered, has to cover extra within the next trading session." It's simple: the market is still free, the crash is still possible because if you own stocks and you want to sell in panic it you may sell it and you may sell as much as you have. Yet if you want to sell short in order to profit on crash your greedy selling abilities are limited and your short trading activity will not affect the market.

2000, 2008 Stock Market Crashes

It  took 2 years after the internet bubble until the stock market hit the bottom and start the recovery movement. During the 2000 year market crash the S&P 500 dropped by 50%. It took more than 4 years for the S&P 500 to recover and reach the same high levels.

It took only a year for the S&P 500 to crash down for 42% now and we still do not see the end... How long will it take to recover from this hole???

Stock Market Crash 1929, 1987, 2000, 2008

• 2008 Stock Market Crash
• 2000 Stock Market Crash
• 1987 Stock Market Crash
• 1929 Stock Market Crash

The Stock Market Crash 2007-2008

Stock Market Crash Causes:

1. Corporate Corruption (as always, even it's not announced yet).
2. Overvalued Stocks  (as always, even it's not announced yet).
3. Mortgage crisis.
4. Over unregulated financial institutions (on my opinion).
5. Unregulated big speculators playing short (my opinion again - we have now much bigger number of speculators including hedge funds who may play short).

After the Crash:

1. Bailout of the financial institution????
2. ???
3. ???

The Stock Market Crash 2000-2002

Stock Market Crash Causes:

1. Corporate Corruption.
2. Overvalued Hi-tech Stocks.

After the Crash:

1. New Rules for Daytraders;
2. CEO and CFO Accountability;
3. Accounting Reforms.

The Stock Market Crash of 1987

Stock Market Crash Causes:

1. No Liquidity. During the crash, the markets were not able to handle the imbalance of sell orders;
2. Overvalued Stocks.

After the Crash:

1. Uniform Margin Requirements;
2. New Computer Systems. Stock exchanges changed to new computer systems that increase data management effectiveness, accuracy, efficiency, and productivity;
3. Circuit Breakers. The New York Stock Exchange and the Chicago Mercantile Exchange instituted a circuit breaker mechanism, which halts trading on both exchanges for one hour should the Dow fall more than 250 points in a day, and for two hours, should it fall more than 400 points.

The Stock Market Crash of 1929

Stock Market Crash Causes:

1. Overvalued Stocks.
2. Low Margin Requirements.
3. Interest Rate Hikes.
4. Poor Banking Structures.

After the Crash:

1. The Securities and Exchange Commission (SEC) was established;.
2. The Glass-Stegall Act was passed to separated commercial and investment banking activities.
3.  In 1933, the Federal Deposit Insurance Corporation (FDIC) was established to insure individual bank accounts for up to $100,000.

S&P 500 Chart

A few numbers:

• DOW is more than 4,500 points down from its October 2007 high and only 2,100 points above March 2003 low;
• S&P 500 is more than 500 points down from its October 2007 high and less than 300 points above March 2003 low;
• Nasdaq 100 is mote than 800 points down from its October 2007 high and about 500 points above February-March 2003 low;

Pretty scary... Yet, I'm optimistic. It's going to be up and taking look at volume surges I saw during this crash I would expect to see a recovery to the August 2008 levels at least. The question is when it will go up. The answer is "sooner or later, but not during this week to that levels for sure" (smile). But seriously, I do not expect the indexes to recover to that levels even by the end of this month, on the other hand anything could happened and that is why it is good monitor the market on daily basis. I believe many traders my find this time good for long-term pension investments by using 401k to buy some stocks on monthly basis (using dollar cost averaging).

For short term speculative investments I may suggest only one - protect your profit. As soon as your position is in profit it is good to have trailing stop set. If you are today in winning position, in such volatile market without this profit protection you can be in losing position tomorrow very fast...

So, what my technical analysis tells me.


This week I decided to use the same chart explanation table I used in my "Nasdaq 100" post on September 6, 2008

	Nasdaq 100	S&P 500	DJI
SBV	Bullish - Moving up
MVO	A lot of red MVO and absence of green MVO suggest highly oversold market
	Bearish - MVO still negative. only when it becomes zero we may say that the volume went down and panic selling is behind		Bullish - MVO=0 and the last MVO was negative
AD Osc.	Bearish - Moving Down
MACD	Bullish - Moving up
RSI	Bullish - Just moved above 30
Stochastics	Bullish - Just crossed 20
McClellan	Bearish - Negative, moving sideway or down
VIX	VIX (Volatility index) is above 50 indicates extremely oversold levels. Yet, it does not move down and could indicate bearish sentiment

Keep in mind that technical analysis based on the 60-day chart cannot be used for mid- or long-term trend. The usual trend that could be expected from the 60-day chart analysis would not last longer than 5-10 days in the normal market. In the high volatile market we have I would not bet beyond 1-2 days from now. Again in such volatile period it is very important to monitor charts constantly - the sentiment changes are very fast and rapid.

DJI - Stock Market Crash

Made on request of www.MarketVolume.com - the only source of volume and advance decline charts for indexes and exchanges.

To take closer look at the current sentiment on the stock market as well as to define the general market tendency I decided to take closer look at higher-time frame chart in particular on 2-year DJI chart.

Chart #1: DJI index. 2-year chart. 1 bar = 2 days. SBV(10), MVO(5,25,3).


From the chart above we may see the extremely high volume surges during the recent crash. Starting from the middle of September 2008 we had records in daily trading volume. The history of the stock market did not see such extremely huge panic selling ever before. This high volume tell us that the extremely huge number of investors left the market, yet we have some group of other investors who was buying in that period at small bargain price - some traders decided to satisfy demands of those who were leaving the stock market in panic. That is why we had this high volume (volume is two side transaction - for each seller there is a buyer).

The average trading volume on NYSE in 2007 was about 3.1 billion shares per day. The average NYSE trading volume in period from the middle of September 2007 until now is about 7 billion shares per day. Starting from September 8, 2008 more than 130 billion shares were traded. Even by assuming that the average price of a stock on NYSE is only $10 per share it will give us more the 1.3 trillion of negative money flow (out of the market).

As a rule, after a huge amount of money is taken out of the market (when SBV declines) we see a rebound (investors start to invest again). From the chart above you may see a rebound each time after SBV decline in August 2007, November 2007, January 2008 and July 2008. Each time when SBV start to advance after being at low negative levels we see that it indicates positive money flow (investors coming back). Sooner or later the investor that left the market in the result of the recent crash will come back and start to inject funds into the stocks. It could be tomorrow, it could be in a week or even a month. When it happened depends on the current political and economical factors affecting the stock market and how fast the investor could be reassured in the coming stability.

At the current moment the declining SBV on 2-year chart show that the Bearish sentiment is dominant among the mid- and long-term investors. Yet, as soon as we start to see advancing SBV on this chart we may assume that the long- and mid-term traders start coming back which may lead the market up and which could be an indication of the rebound. Taking into the account that we had extremely high volume surges during the recent crash we may expect very strong up-trend.

To better anticipate a possibility of the trend reversal we may always consult lower time-frame by applying the same technical indicators to 60-day chart in our case.

Chart #2: DJI index. 60-day chart. 1 bar = 1 hour. SBV(20), MVO(5,25,3).


From the 60-day DJI chart (see chart above) we may see that the critical moment in the recent crash happened in the period from September 15 until September 19, 2008. Exactly in this period we saw the biggest volume surges and also in this period the biggest transfer of the shares occurred. When we see the big number of shares (big volume) is changing hands during the crash it tell us that the number of panic sellers is dramatically reduced (their demands are satisfied – they sold) which may lead to the shift in the supply/demands balance. After that starting from the September 20, 2008 we still see negative money flow, yet the trading volume is dropping and the number of investors leaving the marked reduces (the red SBV areas become smaller and smaller). That reveals that we see slow change in the sentiment on the stock market and we could be in the beginning of the new uptrend.

In Summary: Overall we believe that we are in the begging of the strong reversal which was defined in the middle of the September by huge volume (extremely panic selling) that pushed the stock market into strongly oversold levels. The exact day when the big long- and mid-term investors start to come back depends on many factors, yet we already see a begging of this process on the 60-day chart. From the more conservative point of volume based
technical analysis it could be recommended to wait for a confirmation on the 2-year chart when SBV(10) starts to advance.

PREVENTING UNJUST ENRICHMENT

"Protection from the Golden Parachutes"

I read to the page #9, I found the paragraph below, I become disappointed and did not read further... I'm not a proficient in the art of bailing out the financial institutions - maybe this is why I have luck in understanding...

From the bailout Bill:

(e) PREVENTING UNJUST ENRICHMENT.—In making purchases under the authority of this Act, the Secretary shall take such steps as may be necessary to prevent unjust enrichment of financial institutions participating in a program established under this section, including by preventing the sale of a troubled asset to the Secretary at a higher price than what the seller paid to purchase the asset.

How do I understand it:

If a financial institution has paid for an assets that now in trouble $100K a year ago, and now the market price of this troubled assets is $1K, we have a guarantee that we will not bailout this assets for more than $100K, but there is a high possibility that we will pay $100K for something that currently worth $1K and is in trouble and could cost $0 in a few months.

Wall Street - Spoiled Kid

The bailout will be passed. If not tonight then in a few days. It's out of the question they will play around it it until it's done.

"You do not take away a candy that you've already showed to your spoiled kid. You will give it to him sooner or later".

People of the Kingdom may scream as loudly as they want - nobody will listen. They will be assured that this candy is for their own good but it will be given to the spoiled kid. The huge mistake was done in the first place when this question was risen at all and the candy was brought to the light. Now, the kid already knows that the candy exists and when the kid's parents hesitated in delivering it on Monday the kid has send strong "Black Mail" by pointing to the kid's power and ability to crash the Kingdom.

So, do not worry, the candy will be delivered to the spoiled unregulated kid. You may see it from the fact that the parents do not discuss on delivering or not delivering. All discussions are only about wrapping paper that should be used with this candy.

Main personages
Spoiled Kid: Wall Street
Candy: Bailout
PParents: .....
The Kingdom: .....
People of the Kingdom: ....

I will not be surprised if they rename the "bailout" into the something like "the Kingdom rescue action" by granting themselves as heroes of the Kingdom.

Bailout on Holliday - Stock Market is happy.

As I expected yesterday today we had very nice day on the stock market - more than half of the yesterday crash is recovered. Is it "Because the government is on holidays…" and nobody is messing with market and the stock market is doing what it supposed to do - to recover from the strongly oversold levels. Today's recovery witnesses one more time that yesterday crash was nothing more like political game to scare and press "them" to vote in favor of bailout. They still will be on holiday tomorrow... Does it mean that tomorrow is going to be nice day as well??? If yes, then maybe we have to send them for longer holiday...

Bailout

As I stated yesterday "I have feeling that it would be much better if they did not even announced the bailout than announced it and then started to play political games around it..." - today we had clear political crash. I bet a lot of traders were just looking with smile on this 1-day stock market crash followed by games in the government.

The fact that today’s crash was on light volume tell me that majority of traders are already out of the game, watching the CNN movie called "Breaking News" and just waitinng...

I think tomorrow is going to be a nice day, you know why? Because the government is on holidays…

DJI Chart

Despite my bullish last week outlook (see the "DJI" post on September 22nd, 2008) on the stock market we had the attempt to retest the September 18, 2008 lows. Yet, the market did not hit the bottom, in opposite the DJI (Dow Jones Industrials) recovered half of the weekly decline during the last two trading session. Sometimes I have feeling that it would be much better if they did not even announced the bailout than announced it and then started to play political games around it....

During the past week we had strong decline. Because of that I decided to take a look at longer 1-year chart to see if the results of my previous technical analysis are correct.


From the DOW(30) chart above we may see that the magnitude of the volume during the stock market crash is very big. I have already mentioned in my "DJI Volume" post about my understanding of such huge volume. For me it's indication of the strong panic selling that lead the stock market into strongly oversold stage. If you may try to question it on the 60-day chart by pointing that September 19th rally up has released this oversold power, the 1-year chart make me believe that we did not even see the begging of the market reaction on that huge sell off:

• The volume is still very high, which indicates we still have panic and uncertainty in the market. Yes, the last week daily volume is lower than the daily volume we saw in period from September 12 until September 19, yet it still far above the average daily volume over the past year.
  
  - The fact that the volume is down tells me that the moment of worst fear is over and there are not as many sellers as we had on September 17-18, 2008. Y
  
  - Yet, the fact that the volume is still high tells me that there are still a lot of sellers. However, as I always mention - if we see volume then somebody buying from these panic sellers and the fact that DJI is about 5% up from the September 18th low tells that the power of these buyers is bigger...
• The same with VIX (Volatility index) - it hit the top on September 18 and now it's down and moving flat. It does not move up any more which is good sign. VIX still at high level which indicates highly oversold market. We did not see the VIX moving down which confirms we did not have yet the recovery reaction on the oversold market.
• MVO is red. We do not see green MVO. That means that we had high volume surges during the price decline (panic selling) and we did not have yet high volume during the price advance (greedy buying).
• Low SBV indicates negative money flow. Yet it declines which suggest weak market, however very low levels suggest possibility of very strong recovery.
• MACD and Stochastics are in the recovery direction.

Overall, my 1-year technical analysis is bullish (in spite the last week 3-day decline) with exception of the SBV that could be considered bearish due its decline. I would still stay on my point highlighted in my last week post that I expect to see the recovery.

DJI

Ok, as I mentioned in my last "Index Volume" post on September 16, 2008 we had it - sharp and strong recovery. Just in 1.5 trading session (from noon of September 18, 2008) the Dow Jones Industrials run up about 1000 points!!! I expected to see the indexes at September 12 levels and they (DJI, Nasdaq 100, S&P 500) are there.  I've already pointed to the meaning of the huge volume during the price slide in my "DJI Volume" with bringing to attention (in the "S&P 500" post) similar occurrences of the high volume surges in the past and the price reaction on such huge number of transaction.

I do not think there were a lot of traders who was able to open a long position over the last 1.5 trading session. I believe many traders under the media negative pressure were still trying to play short by using this recovery as a possibility to open a short position and then desperately were monitoring and thinking why the market does not go down with all these bad news... I've already mentioned my "friendly" feeling to the media "I do not trust them!!!" - They always look right by explaining the stock market after the fact. When oil goes up and the DJI drops they tell us that the investors are disappointed by high oil prices and on the next day when oil drops and you expect that investors should be happy you see another day of the DJI slide and guess what, again media is right by explaining you that investors were disappointed by bad situation in financial sector...

As I already said I'm ready to pay for a year of service that provides the volume for indexes in order to have just one such beautiful moment. With volume indicators I have fun by watching the news and their explanation of the market. Stock market is not as it was 10-20 years ago. Look at the NYSE volume 10 years ago - we have now much more speculators in the market and it cannot be ignored... 

The market is always described by price and volume and using technical analysis based on the price indicators only I consider as watching a TV with half of the screen covered. The same with volume I believe it's wrong to base the technical analysis solely on volume. There should always be at least one price based and one volume based technical indicator in any trading strategy, which one should be main and which one confirming it's another point. Only analysis of price movement together with volume flow may give the clear picture of the stock market processes.

So, we see the DJI, Nasdaq 100, S&P 500 and other indexes above the September 12th levels and the question is now "Will it run further to the August 28 and August 11, 2008 highs?"


By looking at the chart above I may say that we have great deal of the volume accumulated during the recent stock market crash, I believe that the market is still heavily oversold and it was not released from this oversold stage over 2 nights (since Thursday) it still has power to run up and so far all the technical indicators I use are positive:

• SBV is on its way up
• MVO show big oversold power
• Advance-Decline is rising
• RSI is rising to the 70
• Stochastics is above 80
• McClellan Oscillator is rising

Mainly based on the MVO I would assume that the odds are very good to see the indexes at August 11, 2008 highs.

Index Volume

Another great day, another huge volume. As I mentioned yesterday in the "DJI Volume" post, today we had drop at the market open and we had strong recovery. I usually do only one post a week, yet, the last and current weeks are rich on events and volume. Now, by looking at this volume I would expect to see the indexes at least above the September 12 highs and I'm not going to be surprised to see them even above August 11th highs as well.

I do not look far ahead, yet at this moment my technical analysis suggest to expect strong recovery. Such huge selloff we saw last week and last two trading sessions has to be paid off by recovery movement. The history suggest (see historical volume surges statistic in my "S&P 500" post) that panic selling leads the market into oversold stage. High volume in indexes indicates that we have traders who started to satisfy demands of the panic sellers and that means that we will run out of panicers very soon and that means that we will have up-trend.

You now, it is worth to pay for several years of access to the volume of S&P 500, Nasdaq 100 and DJI without trading at all in order to spot just such moment as we have now, as we had in July 2008, in January 2008 and so on...

DJI Volume

The record volume in the history DJI and S&P 500 indexes. We have not seen such big panic selling in the Dow Jones Industrial and S&P 500 sectors before. The major influence on the DJI slide was caused by American International Group, Inc. (AIG) which shares dropped down for more than 60%. I do not think we will see such strong panic selling soon.

By following my yesterday "S&P 500" post I may say that, yes, from one side I'm disappointed by such strong crash, from  other side I'm very happy to see the daily volume record in the S&P 500 and DJI sectors - it only confirms that we will see the indexes much higher than they are today and much higher than they were yesterday. Do I see a possibility of the further slide? - yes, there is still negative sentiment on the stock market. Yet, I do not expect to see other strong crashes. Now, after such big volume I would not trade short under any circumstances. Again, I'm just a regular trader, so, do follow my words, but do your own technical analysis.

S&P 500

Over the past week in several my posts ("Support" in particular) I have concentrated my attention on the extremely high volume on the stock market. These high volume surges during the recent decline are seen clearly in all indexes including S&P 500, Nasdaq 100 and DJI. I compared some volume numbers in my "Oversold" post to the historical similar occurrences of high volume surges and pointed to usual stock-market reaction on such volume.

As I already mentioned, in all cases we always saw strong up-trend movement in response to the high volume. I always associate the high volume during the price decline as panic selling which leads market into oversold stage and the extremely high volume as extremely high panic selling which leads the stock market into extremely high oversold stage.

To better explain my view of the volume surge during the decline I set a few points. Yet, before coming to them you have to understand that volume does not show how many buyers or sellers we have, volume is 2-side transaction and for each sold share we have somebody who bought it.

1. Price declines and the volume is low: Price is declining because we have more sellers than buyers and there is not enough buyers on the market to satisfy the demands of these sellers and these sellers are willing to sell at cheaper price in order to find buyers.

2. Price declines and the volume is high (we have volume surge):The panic among sellers is growing as well as greed of the traders playing short and they are pushing the market stronger down. At some moment a group of traders (we may call them smart traders, institutional traders - I call them "Big Money Bags") make a decision to satisfy demands of all sellers by buying the huge amount of shares. At this moment we see high volume surge - a huge number of shares are changing hands.

3. Next: Those who wanted to sell - sold and have nothing to sell any more. Those who have bought, do not want to sell - they just bought and they are not in the losing position, even more, they are willing to buy more at this low price (that is why I call them "Big Money Bags"). So, the market starts to climb up under the buying pressure of the "Big Money Bags".

This is my understanding of the volume surge during the price decline. Why at some point "Big Money Bags" decide to satisfy demands of the panic sellers?, what kind of information do they have? - I do not care. All I know that if some traders with big bags of money decided to satisfy the sellers by buying at cheap price they will have enough money to push stocks higher to dump them at higher price to the greedy buyers later...You may accept my vision, you may decline it. Yet, it's difficult to argue with history. The main concept of technical analysis is to compare the current event to the history and find the possible future trend.

Chart #1: S&P 500


Chart #2: S&P 500
 

Summary of the charts:

July 2007 - Strong volume surge during the price decline with recovery after
November 2007 - Strong volume surge during the price decline with recovery after
January 2008 - Strong volume surge during the price decline with recovery after
March 2008 - Strong volume surge during the price decline with recovery after
July 2008 - Strong volume surge during the price decline with recovery after

September 2008 - Strong volume surge during the price decline ... what is next?

Support?

Today's morning was pretty scary...Yet, if I'm right and as stated in my previous "Oversold" post the stock market really heavy oversold, then each such drop should be used to buy...

My outlook stays the same as it was 2 days ago. Now, by adding 2 more day of extremely high volume at these low levels I have even more assurance in the very strong recovery. Even Lehman Brothers Holdings' drop was not able to stop the Nasdaq 100, S&P 500, DJI and other indexes from the today's recovery...

Sorry, for the short post (if somebody reads it) I do not usually do any posts during the week, yet I like this week and I think we have it, we hit the bottom. I'll try to post a chart during this weekend with 1-year or 1.5-year chart - you have to see it (again if somebody read it).

Oversold?

Unexpected news and unexpected crash, at least for me. Yet, after the reading the news at the morning we know the market reaction on them. We’ve already been there in January 2008, and we already witness July 2008. This is the third financial company that is suffering. In both previous cases we saw it at the very bottom and then we had a strong rebound.

The last two trading session we had extremely high activity (trading volume) on the stock market which could be compared to the daily volume in the January 2008 and July 2008 only. Let's take a look at some historical record daily volume numbers below:

	NYSE	S&P 500
1st Place	January 22-23, 2008	January 22-23, 2008
2nd place	September 8-9, 2008 (now)	July 15-17, 2008
3rd place	July 15-17, 2008	September 8-9, 2008 (now)
4th place	July 11-16, 2008	July 11-16, 2008
	AMEX	DJI
1st Place	July 15-17, 2008	January 22-23, 2008
2nd place	September 8-9, 2008 (now)	January 16-18, 2008
3rd place	July 11-16, 2008	September 8-9, 2008 (now)
3rd place	January 22-23, 2008	July 15-17, 2008

Isn't it interesting... I always associate high volume surges during the price slide with panic selling and extremely high volume - with extremely panic selling which lead the market into heavy oversold stage and as a result into strong reversal..

Based on the volume technical analysis (numbers above) I can set a few points for myself:

• I believe that we are at the bottom;
• I'm expecting to see very strong and sharp recovery;
• I assume that we may see further slide (there is always a possibility of that), yet, I believe, soon we will see the stock market much higher than we are today and than we were yesterday;
• I consider it's extremely risky to be in short now - personally, today, I would rather open a long position than tried to make some money by playing down;

Again, my technical analysis is my subjective view on the stock market. I do not recommend follow it, do not relay on anyone opinion - do your own home work, at the end if you lose you lose your own money.

Fannie and Freddie

Nice rally up. Yes, the Nasdaq 100 was behind, yet, now all my technical indicators on the 60-day chart favor the recovery. Let's see what tomorrow will bring to us.

I always consider that results on your technical analysis, your answer depends on how you put the question. You may ask "When will the market start to follow the Nasdaq 100 and continue its downtrend?" or you may ask "When will the Nasdaq 100 go along with S&P 500 and DJI?". The first question already assumes Bearish answer and the second question expects Bullish answer. Or the question could be neutral "Why the Nasdaq 100 does not follow the rest of the market?"

Today I would like to ask another question "Why does government did bailed out Fannie Mae and Freddie Mac on this week end and not in a week or in a month? Did it happen because otherwise the stock market would crash deeper? Or did it happen because somebody wanted to own these companies while they are still cheap? Or did it happen simply because some people do not want the truth to be revealed when these companies crashed? What does government knows that you don't?"

Another interesting fact... I always pushing myself away from the politics, yet it stroked me… From The Wall Street Journal, I quote

"Sen. Obama has received $105,849 from donors tied to the companies since he ran for the senate four years ago, making him the third-largest recipient in Congress among the top 25 listed in a recent report by the Center for Responsive Politics, which examined contributions dating to 1989.
Sen. McCain wasn't listed in the report, and proponents of overhaul say lobbyists have tried unsuccessfully to win him over." from http://www.wsj.com/article/SB122083279354208543.html

Another homework question : "Do you think if Sen. Obama become the President he and his changes will protect the interests of the regular Americans or interests those who will donor more? "

Nasdaq 100

In my last "Nasdaq 100 Chart" post I have mentioned about the desire of the Nasdaq 100 index to compensate in recent decline what it missed in June-July 2008 decline. I've already emphasized in July (see "DJI" post from 07/20/2008) that the Nasdaq sector was not as oversold as S&P 500 and DJI indexes at that time. It looks like now the Nasdaq stocks decided to catch in the recent decline what was misses in July. While the S&P 500 and DJI indexes were ready for the recovery the Nasdaq 100 index was still behind. However, now (over the last week) we see strong volume surges in the Nasdaq sector. The volume during the decline indicates panic selling and high volume surges during decline indicate that some traders decided to satisfy the demands of the panic sellers by buying huge amount of shares. Keep in mind that Nasdaq 100 index has been in decline since August 16, 2008 while the S&P 500 and DJI only since September 2, 2008 (only 4 trading session).

Now After this week I see very good chances for a recovery. By looking at the 1-year index charts I may assume that the Nasdaq 100 index has become oversold as well and now all three indexes have power to move up. Yet, I could be wrong and I do not recommend following conclusions of my technical analysis. Each trader has to do his/her own homework...

Coming back to my favorite 60-day chart, I see good odds of bullish market, at least at the beginning of the coming week (for the rest of the week I would analyze the same chart during the next week).

I have selected the Nasdaq 100 chart again since (on my opinion) this index was the major engine behind the recent decline. The S&P 500 and DJI indexes technical indicators look similar. This week I decided to set a table of these three indexes which summarizes used by me technical indicators and results of my technical analysis:

	Nasdaq 100	S&P 500	DJI
SBV	Bullish - Moving up
MVO	Bullish -Big volume surges. Now, MV=0 and this is a positive sign as well	Bullish - Big volume yet not as big as in the Nasdaq 100 sector
AD Osc.	Somewhat Bullish - Moving up, yet still at low negative levels
MACD	Somewhat Bullish - Moving up, yet still at low negative levels
RSI	Bearish - Still below 30	Bullish - Just moved above 30
Stochastics	Bullish - Crossed 20 and moving up
McClellan	Somewhat Bullish - Negative and far from center line