Stock Market Crash?

My yesterday's and today's post look like exception from the rule. I do not usually make any comments in my blog during the week. Yet, I do it now because of the changes we see in the stock market and I need to put my thoughts in the correct order. Writing down a few points usually helps me with it and keeps away my emotion from my technical analysis.

In my "Nasdaq 100 is Behind" post on July 1, 2008 I described two possible scenarios on my opinion of the coming reversal. Over the past week we saw developing of the second scenario where the Nasdaq 100 pushed indexes lower. I mentioned that in any cases I would watch for high volume surges that may indicate the end of the downtrend and possibility of a reversal. Yesterday, in the "Advance Decline" post I have pointed on the interesting Advance/Decline behavior and high volume surges. I do not think that today's strong and sharp recovery should be a surprise.

I believe, the main question for me now is to consider if today's strong up-move is a beginning of the recovery or it is just volatile market before further slide...

By looking at my favorite 60-day charts (which I use to analyze 2-10 days trends), after today's rally I may say that all my technical indicators are bullish and point to the higher possibility of the further development of the recovery:
- SBV started to move up;
- I see big number of volume surges during the recent decline;
- McClellan Oscillator is on the up-side;
- Stochastics and RSI bullish as well;
- Advances and Declines points to up-trend;
- VIX Volatility index dropped down.

What I like is that all the indexes (Nasdaq 100, S&P 500 and DJI) show similar bullish sentiment on all technical indicators. Basically, my technical analysis points the higher odds of up-trend.

Yet, there is two things that makes me worry and which will press me to monitor charts more closely:
1. Today's rally was on the high volume which may push the stock market down again.
2. It's a rare situation when the market make a reversal from the down-trend without at least second attempt to hit the bottom.

Basically, I see 3 scenarios of the possible further development:

Scenario #1: Stock market reacts on today's volume and continue to decline. I would be very difficult for the market to do it due to the high oversold state. It's difficult to believe that today's advance relapsed all oversold power and hifted stock market into the oversold state. Personally, I would not expect to see that scenario, yet, there is always a possibility of me being wrong.

Scenario #2: The stock market continues to move up by ignoring the today's high volume during the advance. The market is at high oversold levels and it has power to continue the rally.

Scenario #3: The today's' volume slows down the advance and the stock market continue to move up and then side way with further drop and retesting of the most recent lows and collecting more volume before final reversal.

I believe the next few trading session will more reveal the intends of the market. It would be nice to see drop in the trading volume as a confirmation of the recovery.