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.

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),
S&P 500/BARRA Growth Index Fund (IVW),
S&P 500/BARRA Value Index Fund (IVE).

Besides the ETFs there are other trading vehicles that attract more risky traders who analyze the indexes:

S&P 500 index options,
SPY options,
S&P 500 e-mini futures.

The Rydex and ProFunds funds that tracks the S&P 500 index has become very popular as well.

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”.

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.
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.

Negative signs:

1. Advance/decline volume and issues oscillators are in decline
2. RSI is in decline
3. VIX is still at high level:

I would consider higher odds on the recovery. Yet the indicators may change and they need daily monitoring.



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.

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.

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.

I still do not like that:

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.

2. At the same time I would like to see MVO=0 as well, which would point to the end of the sell off.

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).

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.
2. VIX (Volatility index) is still at high levels – it would be nice to see it lower.

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…



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…

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…

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…