Sunday, July 27, 2008

S&P 500

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On July 21, 2008 in my "Short Technical Analysis" post I highlighted the possibility of the drop down after the strong recovery we saw after July 15, 2008. In a day, on July 23rd the market started to drop and continued its slide by the end of the week.

The question that I would put is "will the market continue its drop lower to retest the most recent lows?"

To answer this question I look at my 60-day chart to see what the recent volume balance and the sentiment on other technical studies. It is worth mentioning that the Nasdaq 100 spent last week differently than the S&P 500 and DJI indexes. As a result the picture on the Nasdaq 100 chart differs from the S&P 500 and DOW(30) charts. While the S&P and Dow Jones index point to the higher odds of the further drop, the Nasdaq 100 index does not look as pessimistic.

Below you may see the S&P 500 60-day chart.

S&P 500 chart
Overall, the technical analysis on the chart above shows the danger of the further market crash:
1. The SBV oscillator is on its way down and indicates the negative sentiment.
2. High MVO on July 23, 2008 reveals that we had strong volume during the price up-move which pushed the stock market into the short-term oversold stage at least. There is no doubt that this volume surge has a power to push the market lower and we already did face 3-day stock market crash.
3. The Advance/Decline oscillator moves up and it is actually a good sign - a sign in the favor of a recovery.
4. Both RSI and Stochastics have dropped below their critical bearish levels. They point to the negative stock market sentiment.
5. McClellan Oscillator is more or less neutral with some potential to the bear market.
6. Despite the 3-day drop down the VIX volatility index is almost flat and is neutral as well.

Again, the about points are related to the S&P 500 and Dow Jones Industrial indexes, the Nasdaq 100 index is less negative and I would even assume may push the market higher.

Yes, overall technical analysis based on the 60-day chart reveals higher odds of the further slide. Yet, personally, I would not play short, since looking on the 1-year chart (see my July 20th DJI post) I see that the market is heavily oversold in the mid-term.  Based on a yearly chart I do not believe that the recent slide may continue very deep down, I would more closely look at the 60-day technical indicators with expectation on a strong reversal. Yet, I could be wrong - my technical analysis is not 100% perfect...

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