Bailout on Holliday - Stock Market is happy.

As I expected yesterday today we had very nice day on the stock market - more than half of the yesterday crash is recovered. Is it "Because the government is on holidays…" and nobody is messing with market and the stock market is doing what it supposed to do - to recover from the strongly oversold levels. Today's recovery witnesses one more time that yesterday crash was nothing more like political game to scare and press "them" to vote in favor of bailout. They still will be on holiday tomorrow... Does it mean that tomorrow is going to be nice day as well??? If yes, then maybe we have to send them for longer holiday...

Bailout

As I stated yesterday "I have feeling that it would be much better if they did not even announced the bailout than announced it and then started to play political games around it..." - today we had clear political crash. I bet a lot of traders were just looking with smile on this 1-day stock market crash followed by games in the government.

The fact that today’s crash was on light volume tell me that majority of traders are already out of the game, watching the CNN movie called "Breaking News" and just waitinng...

I think tomorrow is going to be a nice day, you know why? Because the government is on holidays…

DJI Chart

Despite my bullish last week outlook (see the "DJI" post on September 22nd, 2008) on the stock market we had the attempt to retest the September 18, 2008 lows. Yet, the market did not hit the bottom, in opposite the DJI (Dow Jones Industrials) recovered half of the weekly decline during the last two trading session. Sometimes I have feeling that it would be much better if they did not even announced the bailout than announced it and then started to play political games around it....

During the past week we had strong decline. Because of that I decided to take a look at longer 1-year chart to see if the results of my previous technical analysis are correct.


From the DOW(30) chart above we may see that the magnitude of the volume during the stock market crash is very big. I have already mentioned in my "DJI Volume" post about my understanding of such huge volume. For me it's indication of the strong panic selling that lead the stock market into strongly oversold stage. If you may try to question it on the 60-day chart by pointing that September 19th rally up has released this oversold power, the 1-year chart make me believe that we did not even see the begging of the market reaction on that huge sell off:

• The volume is still very high, which indicates we still have panic and uncertainty in the market. Yes, the last week daily volume is lower than the daily volume we saw in period from September 12 until September 19, yet it still far above the average daily volume over the past year.
  
  - The fact that the volume is down tells me that the moment of worst fear is over and there are not as many sellers as we had on September 17-18, 2008. Y
  
  - Yet, the fact that the volume is still high tells me that there are still a lot of sellers. However, as I always mention - if we see volume then somebody buying from these panic sellers and the fact that DJI is about 5% up from the September 18th low tells that the power of these buyers is bigger...
• The same with VIX (Volatility index) - it hit the top on September 18 and now it's down and moving flat. It does not move up any more which is good sign. VIX still at high level which indicates highly oversold market. We did not see the VIX moving down which confirms we did not have yet the recovery reaction on the oversold market.
• MVO is red. We do not see green MVO. That means that we had high volume surges during the price decline (panic selling) and we did not have yet high volume during the price advance (greedy buying).
• Low SBV indicates negative money flow. Yet it declines which suggest weak market, however very low levels suggest possibility of very strong recovery.
• MACD and Stochastics are in the recovery direction.

Overall, my 1-year technical analysis is bullish (in spite the last week 3-day decline) with exception of the SBV that could be considered bearish due its decline. I would still stay on my point highlighted in my last week post that I expect to see the recovery.

DJI

Ok, as I mentioned in my last "Index Volume" post on September 16, 2008 we had it - sharp and strong recovery. Just in 1.5 trading session (from noon of September 18, 2008) the Dow Jones Industrials run up about 1000 points!!! I expected to see the indexes at September 12 levels and they (DJI, Nasdaq 100, S&P 500) are there.  I've already pointed to the meaning of the huge volume during the price slide in my "DJI Volume" with bringing to attention (in the "S&P 500" post) similar occurrences of the high volume surges in the past and the price reaction on such huge number of transaction.

I do not think there were a lot of traders who was able to open a long position over the last 1.5 trading session. I believe many traders under the media negative pressure were still trying to play short by using this recovery as a possibility to open a short position and then desperately were monitoring and thinking why the market does not go down with all these bad news... I've already mentioned my "friendly" feeling to the media "I do not trust them!!!" - They always look right by explaining the stock market after the fact. When oil goes up and the DJI drops they tell us that the investors are disappointed by high oil prices and on the next day when oil drops and you expect that investors should be happy you see another day of the DJI slide and guess what, again media is right by explaining you that investors were disappointed by bad situation in financial sector...

As I already said I'm ready to pay for a year of service that provides the volume for indexes in order to have just one such beautiful moment. With volume indicators I have fun by watching the news and their explanation of the market. Stock market is not as it was 10-20 years ago. Look at the NYSE volume 10 years ago - we have now much more speculators in the market and it cannot be ignored... 

The market is always described by price and volume and using technical analysis based on the price indicators only I consider as watching a TV with half of the screen covered. The same with volume I believe it's wrong to base the technical analysis solely on volume. There should always be at least one price based and one volume based technical indicator in any trading strategy, which one should be main and which one confirming it's another point. Only analysis of price movement together with volume flow may give the clear picture of the stock market processes.

So, we see the DJI, Nasdaq 100, S&P 500 and other indexes above the September 12th levels and the question is now "Will it run further to the August 28 and August 11, 2008 highs?"


By looking at the chart above I may say that we have great deal of the volume accumulated during the recent stock market crash, I believe that the market is still heavily oversold and it was not released from this oversold stage over 2 nights (since Thursday) it still has power to run up and so far all the technical indicators I use are positive:

• SBV is on its way up
• MVO show big oversold power
• Advance-Decline is rising
• RSI is rising to the 70
• Stochastics is above 80
• McClellan Oscillator is rising

Mainly based on the MVO I would assume that the odds are very good to see the indexes at August 11, 2008 highs.

Index Volume

Another great day, another huge volume. As I mentioned yesterday in the "DJI Volume" post, today we had drop at the market open and we had strong recovery. I usually do only one post a week, yet, the last and current weeks are rich on events and volume. Now, by looking at this volume I would expect to see the indexes at least above the September 12 highs and I'm not going to be surprised to see them even above August 11th highs as well.

I do not look far ahead, yet at this moment my technical analysis suggest to expect strong recovery. Such huge selloff we saw last week and last two trading sessions has to be paid off by recovery movement. The history suggest (see historical volume surges statistic in my "S&P 500" post) that panic selling leads the market into oversold stage. High volume in indexes indicates that we have traders who started to satisfy demands of the panic sellers and that means that we will run out of panicers very soon and that means that we will have up-trend.

You now, it is worth to pay for several years of access to the volume of S&P 500, Nasdaq 100 and DJI without trading at all in order to spot just such moment as we have now, as we had in July 2008, in January 2008 and so on...

DJI Volume

The record volume in the history DJI and S&P 500 indexes. We have not seen such big panic selling in the Dow Jones Industrial and S&P 500 sectors before. The major influence on the DJI slide was caused by American International Group, Inc. (AIG) which shares dropped down for more than 60%. I do not think we will see such strong panic selling soon.

By following my yesterday "S&P 500" post I may say that, yes, from one side I'm disappointed by such strong crash, from  other side I'm very happy to see the daily volume record in the S&P 500 and DJI sectors - it only confirms that we will see the indexes much higher than they are today and much higher than they were yesterday. Do I see a possibility of the further slide? - yes, there is still negative sentiment on the stock market. Yet, I do not expect to see other strong crashes. Now, after such big volume I would not trade short under any circumstances. Again, I'm just a regular trader, so, do follow my words, but do your own technical analysis.

S&P 500

Over the past week in several my posts ("Support" in particular) I have concentrated my attention on the extremely high volume on the stock market. These high volume surges during the recent decline are seen clearly in all indexes including S&P 500, Nasdaq 100 and DJI. I compared some volume numbers in my "Oversold" post to the historical similar occurrences of high volume surges and pointed to usual stock-market reaction on such volume.

As I already mentioned, in all cases we always saw strong up-trend movement in response to the high volume. I always associate the high volume during the price decline as panic selling which leads market into oversold stage and the extremely high volume as extremely high panic selling which leads the stock market into extremely high oversold stage.

To better explain my view of the volume surge during the decline I set a few points. Yet, before coming to them you have to understand that volume does not show how many buyers or sellers we have, volume is 2-side transaction and for each sold share we have somebody who bought it.

1. Price declines and the volume is low: Price is declining because we have more sellers than buyers and there is not enough buyers on the market to satisfy the demands of these sellers and these sellers are willing to sell at cheaper price in order to find buyers.

2. Price declines and the volume is high (we have volume surge):The panic among sellers is growing as well as greed of the traders playing short and they are pushing the market stronger down. At some moment a group of traders (we may call them smart traders, institutional traders - I call them "Big Money Bags") make a decision to satisfy demands of all sellers by buying the huge amount of shares. At this moment we see high volume surge - a huge number of shares are changing hands.

3. Next: Those who wanted to sell - sold and have nothing to sell any more. Those who have bought, do not want to sell - they just bought and they are not in the losing position, even more, they are willing to buy more at this low price (that is why I call them "Big Money Bags"). So, the market starts to climb up under the buying pressure of the "Big Money Bags".

This is my understanding of the volume surge during the price decline. Why at some point "Big Money Bags" decide to satisfy demands of the panic sellers?, what kind of information do they have? - I do not care. All I know that if some traders with big bags of money decided to satisfy the sellers by buying at cheap price they will have enough money to push stocks higher to dump them at higher price to the greedy buyers later...You may accept my vision, you may decline it. Yet, it's difficult to argue with history. The main concept of technical analysis is to compare the current event to the history and find the possible future trend.

Chart #1: S&P 500


Chart #2: S&P 500
 

Summary of the charts:

July 2007 - Strong volume surge during the price decline with recovery after
November 2007 - Strong volume surge during the price decline with recovery after
January 2008 - Strong volume surge during the price decline with recovery after
March 2008 - Strong volume surge during the price decline with recovery after
July 2008 - Strong volume surge during the price decline with recovery after

September 2008 - Strong volume surge during the price decline ... what is next?

Support?

Today's morning was pretty scary...Yet, if I'm right and as stated in my previous "Oversold" post the stock market really heavy oversold, then each such drop should be used to buy...

My outlook stays the same as it was 2 days ago. Now, by adding 2 more day of extremely high volume at these low levels I have even more assurance in the very strong recovery. Even Lehman Brothers Holdings' drop was not able to stop the Nasdaq 100, S&P 500, DJI and other indexes from the today's recovery...

Sorry, for the short post (if somebody reads it) I do not usually do any posts during the week, yet I like this week and I think we have it, we hit the bottom. I'll try to post a chart during this weekend with 1-year or 1.5-year chart - you have to see it (again if somebody read it).

Oversold?

Unexpected news and unexpected crash, at least for me. Yet, after the reading the news at the morning we know the market reaction on them. We’ve already been there in January 2008, and we already witness July 2008. This is the third financial company that is suffering. In both previous cases we saw it at the very bottom and then we had a strong rebound.

The last two trading session we had extremely high activity (trading volume) on the stock market which could be compared to the daily volume in the January 2008 and July 2008 only. Let's take a look at some historical record daily volume numbers below:

	NYSE	S&P 500
1st Place	January 22-23, 2008	January 22-23, 2008
2nd place	September 8-9, 2008 (now)	July 15-17, 2008
3rd place	July 15-17, 2008	September 8-9, 2008 (now)
4th place	July 11-16, 2008	July 11-16, 2008
	AMEX	DJI
1st Place	July 15-17, 2008	January 22-23, 2008
2nd place	September 8-9, 2008 (now)	January 16-18, 2008
3rd place	July 11-16, 2008	September 8-9, 2008 (now)
3rd place	January 22-23, 2008	July 15-17, 2008

Isn't it interesting... I always associate high volume surges during the price slide with panic selling and extremely high volume - with extremely panic selling which lead the market into heavy oversold stage and as a result into strong reversal..

Based on the volume technical analysis (numbers above) I can set a few points for myself:

• I believe that we are at the bottom;
• I'm expecting to see very strong and sharp recovery;
• I assume that we may see further slide (there is always a possibility of that), yet, I believe, soon we will see the stock market much higher than we are today and than we were yesterday;
• I consider it's extremely risky to be in short now - personally, today, I would rather open a long position than tried to make some money by playing down;

Again, my technical analysis is my subjective view on the stock market. I do not recommend follow it, do not relay on anyone opinion - do your own home work, at the end if you lose you lose your own money.

Fannie and Freddie

Nice rally up. Yes, the Nasdaq 100 was behind, yet, now all my technical indicators on the 60-day chart favor the recovery. Let's see what tomorrow will bring to us.

I always consider that results on your technical analysis, your answer depends on how you put the question. You may ask "When will the market start to follow the Nasdaq 100 and continue its downtrend?" or you may ask "When will the Nasdaq 100 go along with S&P 500 and DJI?". The first question already assumes Bearish answer and the second question expects Bullish answer. Or the question could be neutral "Why the Nasdaq 100 does not follow the rest of the market?"

Today I would like to ask another question "Why does government did bailed out Fannie Mae and Freddie Mac on this week end and not in a week or in a month? Did it happen because otherwise the stock market would crash deeper? Or did it happen because somebody wanted to own these companies while they are still cheap? Or did it happen simply because some people do not want the truth to be revealed when these companies crashed? What does government knows that you don't?"

Another interesting fact... I always pushing myself away from the politics, yet it stroked me… From The Wall Street Journal, I quote

"Sen. Obama has received $105,849 from donors tied to the companies since he ran for the senate four years ago, making him the third-largest recipient in Congress among the top 25 listed in a recent report by the Center for Responsive Politics, which examined contributions dating to 1989.
Sen. McCain wasn't listed in the report, and proponents of overhaul say lobbyists have tried unsuccessfully to win him over." from http://www.wsj.com/article/SB122083279354208543.html

Another homework question : "Do you think if Sen. Obama become the President he and his changes will protect the interests of the regular Americans or interests those who will donor more? "

Nasdaq 100

In my last "Nasdaq 100 Chart" post I have mentioned about the desire of the Nasdaq 100 index to compensate in recent decline what it missed in June-July 2008 decline. I've already emphasized in July (see "DJI" post from 07/20/2008) that the Nasdaq sector was not as oversold as S&P 500 and DJI indexes at that time. It looks like now the Nasdaq stocks decided to catch in the recent decline what was misses in July. While the S&P 500 and DJI indexes were ready for the recovery the Nasdaq 100 index was still behind. However, now (over the last week) we see strong volume surges in the Nasdaq sector. The volume during the decline indicates panic selling and high volume surges during decline indicate that some traders decided to satisfy the demands of the panic sellers by buying huge amount of shares. Keep in mind that Nasdaq 100 index has been in decline since August 16, 2008 while the S&P 500 and DJI only since September 2, 2008 (only 4 trading session).

Now After this week I see very good chances for a recovery. By looking at the 1-year index charts I may assume that the Nasdaq 100 index has become oversold as well and now all three indexes have power to move up. Yet, I could be wrong and I do not recommend following conclusions of my technical analysis. Each trader has to do his/her own homework...

Coming back to my favorite 60-day chart, I see good odds of bullish market, at least at the beginning of the coming week (for the rest of the week I would analyze the same chart during the next week).

I have selected the Nasdaq 100 chart again since (on my opinion) this index was the major engine behind the recent decline. The S&P 500 and DJI indexes technical indicators look similar. This week I decided to set a table of these three indexes which summarizes used by me technical indicators and results of my technical analysis:

	Nasdaq 100	S&P 500	DJI
SBV	Bullish - Moving up
MVO	Bullish -Big volume surges. Now, MV=0 and this is a positive sign as well	Bullish - Big volume yet not as big as in the Nasdaq 100 sector
AD Osc.	Somewhat Bullish - Moving up, yet still at low negative levels
MACD	Somewhat Bullish - Moving up, yet still at low negative levels
RSI	Bearish - Still below 30	Bullish - Just moved above 30
Stochastics	Bullish - Crossed 20 and moving up
McClellan	Somewhat Bullish - Negative and far from center line

Nasdaq 100 chart

I mentioned in my previous "Panic Selling..." post that the Nasdaq 100 index was not as oversold as S&P 500 and DJI indexes during the recent crash in July 2008 by pointing on some bearish sentiment in the Nasdaq 100 sector while the DJI and S&P were more optimistic. Over the last two session we continued to see the power pressure of the Nasdaq companies which continued to push the stock market down. The question is for how long.

The Nasdaq 100 index is most dramatic over the past couple of session and that is why I brought out the Nasdaq 100 60-day chart to see what is the tendency in the changes of this index sentiment changes. The same as before the S&P 500 is not as bearish as the Nasdaq 100 and the DOW(30), I would say, even somewhat bullish. Despite the negative Nasdaq pressure the Dow Jones managed to end today's session even with shallow gain.


Summarizing the Nasdaq 100 technical indicators on the chart above I may say that

• SBV is still bearish - moving down (neutral on S&P 500 and positive on the DJI);
• We see high volume surge during the last two trading session slide (high negative MVO) which is a good sign for possibility of the coming reversal. Yet MVO is still below zero line (the same on the S&P and DOW);
• Advance/decline oscillator is more neutral by moving close to the central line (similar on the S&P and DOW);
• MACD started to move up which would favor the reversal (S&P 500 and DJI MACD bullish as well);
• RSI is at 30. Should it drop below it would point to the possibility of the further slide. Should it move up it would indicate bullish sentiment (S&P and DOW RSI are somewhat bullish);
• Stochastics is below 20 - bearish sign (S&P and DOW Stochastics are bullish);
• McClellan Oscillator reversed and started to move up, yet it still below zero line.

So, I see some negative signs in the Nasdaq 100 index. Yet, at the same time I see some technical indicators started to change from bearish into neutral and from bearish into bullish, which could point that we could be close to the bottom. It looks like the S&P and DJI are ready to go up and they wait for the Nasdaq companies only.