Sunday, November 23, 2008

DJI Analysis

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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.

DJI support chart

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.