S&P 500 Chart

Are you still hesitating that volume works? Read my "DJI Analysis" post a week ago and take a look where the indexes are no. There is one rule in volume based technical analysis that every trader suppose to know: "Do not play Short on high volume surge during the price drop". I'm not even taking about opening a long trade or analyzing volume to see where the trend reversal could be expected. This is the first rule. If you are in "short" and price goes down and you see big volume surge close the position. Yes, you may win less but you will not lose a lot on sudden and strong reversal.

I'm wondering what technical analysis with exception of volume based technical indicators pointed a week ago on the high possibility of strong reversal. News and fundamental analysis are negative all the time: refuse to bailout automakers, request for another $800 billions of "rescue package", growing unemployment, dropping consumer confidence... Try to find at least one positive factor.

The logical question could be put is "Could S&P 500 20% and DJI 18% run mean the this is the end of the Global Recession?". My answer is I do not know and technical analysis will not answer you where the Stock Market is going to be in 2-5 years. The science of technical analysis has been developed to analyze stock market trends and flow of the money (volume) in order to spot overbought and oversold condition which could could lead to the trend reversal as well as to define technical indicators that may confirm the reversal on its earliest stage. I do not believe in technical analysis for long-term trading, yet, I believe it could be used for mid- and short-term trading because these timeframes less affected by politics.

Any way, let's go back to our technical indicators to see what they forecast.


We can see some oversold levels on many indicators which is a result of strong up-move over that past week. You may see that SBV shows a lot of green, RSI and Stochastics are above 70 and 80 lines respectively, Advance/Decline Oscillator has a lot of green as well - all of these indicats overbought market at least in short term. However, even these indicators are overbought, only McClellan Oscillator is strongly Bearish - it crossed zero line. The rest of technical indicators still point to Bullish sentiment, which, however, could become Bearish any time. Yes, I see some indication of possible move down and I' would closely monitor charts over the next couple of trading session especially on intraday levels to see if the market start dropping towards the November's bottom. Even If we see that move down I would not expect to be it very deep at this point of time. I would like to see some Positive (green) MVO (high volume during the price up-move) that would indicate some greedy buying before.

If I believe that the market is still Bullish and it still may go further up, yet, there is growing possibility of having at least a correctional move down, that means that especially now I would consider some trading strategy that would protect achived profit.

Another Bailout?

Another bailout? Can anyone explain why do we need it? Is this the beginning of the end? The explanation that banks need to land money to people so they can borrow and spend more because when the people spend it stimulates economy does not explain how we are going to recover from the crisis. Put people in bigger debt is not a solution, but only delay of worthier. People do not have to buy a car every new year just because new model has GPS and the next model has DVD - it is an automaker who has to look how to improve technology and reduce the cost - it is an automaker problem to find a new markets...

It is not a consumer problem that a producer oversupplied the market with unnecessary, uncompetitive and overpriced product. My answers to the banks is "Stop putting people into the debt - it will crush you. You may not survive on the debts of others. Work on how to make people rich and you will be rich".

This bailout looks scary for me. I have feeling that banks uses the first bailout not what it was set for and now they need another package. Increase our national debt by another trillion? What is next? - Selling Alaska back to Russia?

Support

As a confirmation of my yesterday statement we had today continuation of the recovery rally. The DJI and Nasdaq 100 indexes are almost 13% from the bottom while the S&P 500 index moved up for more than 14% in two trading sessions. As you may see, in spite the horrible news about automakers the stock market gave us strong rally up. Why? - because of the huge volume surges that stopped decline and reversed the trend. As I mentioned yesterday huge volume during decline means that we have the bottom when the price is so low that it become attractive to the institutional investors who started to buy in big volumes by satisfying demand of the retail traders selling in panic.

Is this the end of the recession? - I do not know. I think it's too early to discuss it. In short term I would expect to see further move up - at least my technical analysis show this possibility. On the other hand 10% profit should make any trader to think about profit protection strategy (trailing stop for instance).

DJI Analysis

Another bailout - another crash? On my opinion the indexes moved down under the high Bullish volume (greedy buying) seen on October 29-30, 2008. Strong rally on October 28 inspired investors and they started to buy (see green MVO on the chart below). Yet, not for a long. Many investors are still desperate and on November 20-21, 2008, after the indexes dropped below the 10/10 (October 10) support, wee see explosion of the extreme panic selling (see the same chart below). Most likely this panic selling did set new support level.



I always point to the importance of understanding volume surges. The main rule that is usually forgotten by many traders is that volume is always two side transaction and when you see volume = 100 shares it means that somebody sell 100 shares and somebody bought these 100 shares. When we have volume surge and volume = 2.6B (daily DJI volume on 11/21/2008) that mean that some investors decided to buy 2.6B shares from those who were selling them in panic. No doubt that this extremely high volume indicates that now panic sellers have 2.6B shares less to sell and as a result there are less sellers on the market to push it further down.

How many of investors in panic is still on the market - I do not know. There still could be a lot of traders willing to sell stocks they have in panic or sell stocks short in greed. I know one thing - by tracking volume I may clearly see that big money bags (big institutional investors) were buying on September 15-19, they were buying on October 8-17 and they are buying now. The huge volume surges in these periods means huge number of shares moved from one group of investors to others. Only long-term investors have such big money to buy in such huge volumes. The big investors use simple trading strategy - each time they see new bottom, new low bargain price - they are buying. The same that everybody suppose to do with IRA and 401k accounts - each time you see huge volume surge and new low - invest money into your pension - follow big money. If you do not believe me look at the news and check what Arabian and American billionaires are doing...

I think that November 20-21 has market the new support level which is confirmed by high volume. I do not expect the stock-market be below this level soon. It is not necessary the end of the global recession, yet the huge volume seen over the last couple has to be processed and it take's time.

It was about my view on long-term investments and long-term technical analysis. About shorter-term I may say that my technical analysis at the current moment is positive:

- SBV is moving up by showing the buyers coming to the market;
- MVO shows high volume surges during the indexes decline;
- Advance/Decline Oscillator show heavily oversold market and moving up by indicating the changes in the sentiment;
- MACD, Stochastics and RSI are mowing up which is positive sign as well;
- McClellan Oscillator is neutral by moving flat around center zero line.

All my points could be seen on the DJI chart above. The S&P 500 chart has the same picture and results of the S&P 500 technical analysis is basically the same. The Nasdaq 100 technical analysis show stronger oversold levels. 10/10 (October 10) low has been broken a few days earlier and we may expect to see stronger up move on this index.

Again, this is my technical analysis and I could be wrong. I may recommend only one thing - do your own analysis.

Another bailout?

Another volatile week is behind. I did not expect the market to retest third time the 10/10 (October 10, 2008) lows, yet it is forth time when we see rebound from this level. That is why it's important to monitor charts on daily basis, especially in these volatile days - if I made mistake I have time to reanalyze and correct yourself.

I believe there is no doubt that 10/10 high volume stopped the crash and set support level. From that time we have seen volatile swings between October 10 lows and October 14 highs. Some of the indexes dropped slightly below the 10/10 support (Nasdaq 100) and some of the indexes are moving flat on and above the October 14 level (Dow Jones Utilities).

I believe many investors asking the same question "Will automakers crisis push the market into another crash?". This is another political game and I do not know. My opinion is that what we see now is a direct result of financial bailout. We did bailout banks and now we started to discover that the financial sector did not suffer as badly as it was described - they use bailout money to buy another banks. As I understand, if they do it they were not in the need of cash to be saved... They needed the cash because now when the market is in the bottom it's good time to buy... Now automakers started to follow this example. If you do not bailout us we will crash you - doesn't it remind you something????

I was against bailout of financial sector and I'm against bailout of automakers.

This is my word to you automakers: "DO YOU NEED MONEY? DROP THE PRICE ON THE CARS BY 20% - YOU WILL GET WHAT YOU WANT. IF IT'S NOT ENOUGH THEN DROP THE CAR PRICE BY 50%". When I drive on the street I see thousands of cars in hundreds places. It tells me that you have an asset that you may sell to taxpayers and cover your losses caused by your bad management instead of threatening and asking taxpayers to bail you out... But you won't do it... You do not even think what has to be done to save this industry, what you think is how to get easy money...

S&P 500

In my previous "DJI Chart" post on November 2, 2008 (a week ago) I have described the possibility of the slide. The market was overbought in short term at that time and during this week we shad two session of the slide (November 5-6). I think some trader are worried if this slide is going to continue to the 10/10 (October 10) lows.

I would repeat myself that over the longer term I'm still bullish and this slide did not change any of the technical indicators I use on the higher-timeframes (1-2 years charts) - all of them are still bullish and all of them point to the higher odds of the further recovery. Yet, the question about the retesting of the 10/10 lows is not about longer term. I would rather consider it as a short-term question.

In short-term, the technical analysis applied to the 60-day chart (1 bar = 1 hour) is more bullish than bearish and I would expect to see short-term up move within the next few sessions. If a week ago I saw the short-term overbought indexes, today I see short-term oversold market.


The technical analysis applied to the S&P 500 index above is the same as it would be applied to the Nasdaq 100 and Dow Jones Industrials indexes. At the current moment all three main indexes show similar sentiment:

a) We see Bearish volume surge - red MVO which already equal to zero - This Bearish volume may push the indexes up;

b) Advance/Decline oscillator is rising and is above to cross center line. This suggest that investors are moving towards advancing stocks - they are buying;

c) MACD is moving up which  is indication of Bullish trend;

d) RSI and Stochastics moved above 30 and 20 levels respectively which is bullish sign as well;

e) McClellan oscillator started to move up which is a good sign for up-move, yet it still below zero line which indicate bearish market;

f) SBV show small advance, yet, this advance is too small to consider this technical indicator bullish.

Overall, in short-term I would expect an up-move rather then further drop towards the 10/10 lows. Again, the market is still very dynamic and volatile and today's bullish sentiment can reverse very fast. Because of that I would recommend monitoring charts every day.

DJI Chart

It was a nice week. The indexes climbed close to the October 14th highs (especially Dow Jones Industrials).

Twice the stock market tried to brake the October 10th lows, yet it is second time up and second time the investors are asking a question "is this the end of the recession and the market will go up or this is just a break before further crash?"

You may remember from my previous posts I stated that 10/10 (October 10, 2008) high volume surges had to stop the market from its panic slide. At the same time I stated, that only when I see the indexes moving up above October 14, 2008 highs I may more or less consider the possibility of the end of the stock market crash. I still belive that the huge volume we saw during the crash could mark the bottom of the crash. We have number of facts that points to the end of the crash: the market is heavily oversold - many technical indicators on the higher-timeframe charts (1.5-year, 2-year charts) show it; there are not many traders left who sell in panic - the fact that we did not see extremely huge volume during the first and second retest of the 10/10 lows confirms that. Yes, I think the stock market has all reasons to move up, yet, it's still close to the bottom and the market is still volatile which reveals that the market is still weak and we still may see changes in the sentiment. Overall, I consider myself bullish over the longer term and October 2008 was a good month to invest into the IRA and 401K.

Even I'm bullish in longer-term, shorter-term charts are showing that we start to see some indication of the overbought market in short term. From the chart below you may see high volume during the recovery on October 29-30, 2008. There could be 2 explanation of this volume surges: a) traders who are in panic and still did not close position on 10/10 decided to exit the market with smaller losses; b) greedy short players started to sell short by expecting the resumption of the recession. I do not think that those traders who bought on 10/10 from panic sellers ware selling now by the following reasons: a) 10/10 volume is extremely big and it tells that those traders were long-term players (short-term traders do not have such big bags of money); b) these traders were buying not just on 10/10 but every time we saw red MVO; c) the volume during recovery on 10/29-30 is relatively small if we compare it to volume surges during decline. I still consider this bullish volume may push the market down at least in a short-term. Other technical indicators are in similar short-term condition: SBV, Advance/Decline Oscillator and Stochastics show overbought market, yet are still bullish; MVO, MACD, RSI and McClellan Oscillator show bearish sentiment and possibility of move down


The 60-day technical analysis applied to the Nasdaq 100 and S&P 500 charts show similar to the DJI analysis results you may see on the chart above.

Even shorter-term charts show the possibility of slide there could be a scenario when these indication could be ignored if the market is under the influence of the longer-term trend. If this is the case and the market will move up, then it will confirm that the 10/10 bottom could be the bottom of the recession.