Short-term Technical Analysis

Last week in my "S&P 500 post" based on the 60-day technical analysis I have mentioned that the stock market has potential for further slide, yet, not a deep one. The market continued to drop on Monday July 28, 2008 and on Tuesday it is already started its recovery movement.

Now, again by looking at the 60-day chart I am not very optimistic. Again the same as on the last week I may see that over the shorter term I see more overbought indicators that may push the market lower to retest the July 15, 2008 lows. All three major US indices - DJI, Nasdaq 100 and S&P 500 - the 60-day index charts show me that

• SBV oscillator declines,
• McClellan Oscillator declines,
• Advance-decline oscillator declines
• we have high positive MVO on July 23rd and July 30th with absence of the Negative MVO
• Stochastics is below 20

On the other hand I see some positive movement in the MACD and RSI started to advance.

In summary, over the shorter term, the high positive MVO shows that there is a possibility of a slide and now overbought levels are stronger than we had last week.

However, the longer-term charts (1-year charts) still indicate high oversold levels for the S&P 500 and DOW(30) indexes (the Nasdaq 100 companies are not as oversold as the rest of the market). The only negative sign on this chart I see is the fact that the SBV oscillator started to decline.

So, what it is going to be? Will the market slide based on the 60-day technical analysis, or will it ignore shorter term technical indicators and will run higher based on the 1-year oversold levels?

I would put it in the following form: yes, I think the during June - July stock market crash we saw very strong volume surges which indicate extremely panic selling and which tell me that in that period some part of investor (who has enough funds to satisfy the panic selling demands during the crash) were buying. Based on this, I would assume that even if the market slide down towards the July lows, it still has a potential to be higher than it  is today simply because those traders who wanted to sell already sold in panic during the June - July. The ideal picture that I would like to see is a slide with the high volume (low negative MVO) and then strong reversal. Yet, I still consider a possibility that shorter term oversold levels could be ignored and the market can move higher.

I'm sorry, I do not present a chart today. You may check the chart by yourself. As a reference, you may see the 60-day chart setting I use in my last week post and my 1-year chart settings in my DJI post.