Saturday, May 10, 2008

Technical Analysis

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I’m still bullish – see my previous "S&P 500" post - yet I think we are facing the correction within the stronger dominant up trend.

By coming back to the 60-day chart, I may say that my set of the technical indicators does not look very optimistic at this point of time. The only promising point is the negative MVO seen on the Dow Jones Industrial (DJI) on May 8, 2008. It tells me that on his day we had some abnormal volume during the index drop, which could lead to the reversal up move. However, the S&P 500 MVO on that day was much smaller and the absence of the negative MVO make me assume that we still could see some down side move. I would say the DJI is ready for up-move, yet, the Nasdaq 100 and S&P 500 still may push the market down.

On the other hand over the past couple of weeks we saw situations when the market moved up by ignoring oversold indicators and negative news. It's usual characteristic of the bullish market when the weak overbought (bullish) technical indicators and small positive news are pushing market up while much stronger oversold indicators and much stronger negative news are needed to push the market into down-side correction. So, I'm not going to be surprise if I see early exit from the correction.

On this week I have added McClellan oscillator to my chart. Technical analysis based on the McClellan oscillator helps me  better separate periods of the bullish and bearish mood on the stock market. Recently we saw advancing McClellan Oscillator and that tells that we may face the reversal - it's another positive sign. Yet, yesterday it stopped to advance and started to decline, by indicating that the correction is not over yet.

The main question for me would be to define the point or period when I may more or less safe state the odds are on the side of the up-trend. I would put several criterias which would help me define it:

  1. I would like to see the advancing SBV
  2. It would be nice to see bigger negative MVO in the NASDAQ 100 and S&P 500 sectors - it's not necessary condition. We did not see big negative MVO on March 11, 2008, only DJI has strong negative MVO on that day
  3. Stochastics above 20 would confirm the up-trend resumption.
  4. I would prefer to see the McClellan oscillator rising again.
As I already mentioned several times, this is my personal view on the stock market and it does not mean that my technical analysis is correct...S&P 500 cchart

1 comment:

Ashish said...

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