Sunday, April 6, 2008

Technical Analysis and Media

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Haven't been making any posts for the last two weeks. If you read my previous post you may see how skeptical I was about all this noise in the media about recession. The same as before, my view on the market is that the January 22-23, 2008 could be considered as the end of the market crash.

My major point was and it's still is that the huge volume released during this stock market crash, especially in period from January 8 until January 25 2008 has set the strong support level. As I always mention - volume is 2-side transaction. If we have volume = 6 billion shares on January 23, 2008 that means that huge number of traders sold 6 billion shares in panic under the media pressure about the long-term recession.

The Question #1 that each trader has to ask: who bought these shares (that’s why we have volume)… Interesting… who could buy such huge amount of shares in the period of the world wide panic and in spite of all the bad news and in spite of all the talk about stock market crash…. Question # 2 that should be asked: What are those traders who sold in panic are going to do now?... They have cash, they do not have shares… Sooner or later they have to start investing again…. yet nobody selling any more in panic….

In the middle of the March 2008 we had second attempt to break the support level set in January. Some of the indexes break it (S&P 500 and NASDAQ 100) some do not (DJI). Again we had huge volume release during this time, again some 'mysterious traders' were buying while everybody were selling in panic under the media pressure about U.S. banking system crash….

Now we are up again…. Do you still trust media…. Where they were when the crash started in October 2008?…

Ok. Let’s go back to the market indicators. Let’s take a look at charts to see what they tell us.

If I look at 2-year chart I see very positive sentiment. The fact that the volume is down and VIX (volatility index) is down reveals that the market is going away from the panic selling. NASDAQ 100 has broke the February 4, 2008 high, yet the S&P 500 and DJI is still a few points below this level. Overall mid-term indicators look bullish by showing that there is a good potential of the further recovery development.

It was the big picture. If we take look at the shorter term charts and technical indicators we may not see such bullish picture. The last week recovery has brought the stock market in some overbought stage that may push the market into short-term correction (which could be healthy for recovery continuation). On the 60-day chart we may see oversold SBV(20) which moves down by indicating the possibility of the correction. Big MVO(5,25,3) on April 1–2, 2008 would point to the big volume surge during the price move up which may reverse the trend down. Advance decline indicators are moving down towards the negative territory by revealing the growing bearish sentiment. RSI and Stochastics are at the oversold levels and it looks like they have tendency to move down. MACD is moving down as well (negative sign). The indicators are bearish on all indexes including the NASDAQ 100, S&P 500 and DJI. That tells me that we have possibility of the move down over the next few trading session. Yet if the current move up is begging of the recovery from the market crush then we may face the situation when the expecting correction could be shallow or when the bearish indicators are ignored.

In few words, my technical analysis tells me mid-term up, yet short-term dowm.

SP 500

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