Sunday, November 2, 2008

DJI Chart

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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

DJI chart - Technical Analysis
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.

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