Stock market Crash Analysis

Friday was a nice day. The sentiment become positive and it happened on the high volume. See the DOW Jones Industrials chart below.


As I always state, I associate the high volume during the price decline with panic selling and extremely high volume with extreme panic. We already had the huge volume surge in the middle of September 2008 (see my "DJI Chart" post) which marked the end of the crash (on my opinion) at that time. I still convinced that it would be the end of the crash or at least a very solid bounce before further slide. Yet, the market dropped further down by ignoring the highly oversold levels. Why? - I think only because of the bailout (see my "Wall Street" post). When you show a "candy" to a spoiled kid you have to give it to him otherwise the child will black mail you. That is exactly what happened, credits were frozen and the kid received what he wanted...

One more point into the the favor of protecting profit strategy. We had a strong bounce on September 19, 2008 (only one day), however the reaction on the high volumes in September was not as strong as I expected, yet strong enough to be in profitable position. This situation show importance of the protecting profit - those who did not a set trailing stop instead of winning trade could end with loss.

The same is now. We have second wave of the extremely high volume - huge amount of shares changed hands - somebody was buying from panic seller in huge amounts... That tells me that we have very good chances of the strong bounce up. This week high volume together with unprocessed volume surges we had in September can push the market significantly higher. The stock market is extremely heavily oversold. Now, we saw some light when the buyers were dominant on the market (Friday's afternoon) and based on what I see I think this could be a begining of strong movement.

Yes, I'm positive - my technical analysis shows that on Friday we hit some bottom. I'm not telling that this is the End of the stock market crash and now only bright days are ahead. What I want to say is that there is a high probability we will see up-move as the reaction on the high volume surge. Will this bounce grown into the long-term recovery is another question, which would be premature to discuss now. That is why if I have opened a long position I set a trailing stop to protect a profit.

For long-term investment (IRA, 401k) I may say only one - you bought last month on the decline and high volume and now you buy lower on the decline and high volume again. If the market in a month is lower and you see high volume you will buy again. If you are long-term investor you will be reworded. If you do not know what to buy then invest into the indexes - the weak companies are dropped from the indexes and on their place come stronger ones and you do not have to do a research to find out what companies are strong.