Sunday, January 25, 2009

Short technical Analysis

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Last week my technical analysis (see "Dow Jones Industrials" post on January 18, 2009) was positive, yet, it looks like the stock market stuck on the same level for a week mowing around support highlighted in my previous report. Now, taking a look at the same technical indicators I see that all of them on all main indexes (S&P 500, DJI and Nasdaq 100) are still bullish with exception of McClellan Oscillator which is on its way down indicating a possibility of slide.

DJI chart

I still consider January 15, 2009 low level (drawn in my last post) as a possible support level and this sis mainly because of high trading volume in this period. Yes, over the past week the indexes dropped lightly below this level, however not deep enough to consider that there still a lot of panic sellers who may push market lower.

There is sill one factor that makes me worried. If starting from November 2008 the volatility was going down, see ATR%(7) on yearly (1 bar = 1 day) chart and in the beginning of January 2009 volatility dropped almost to 2008 summer levels, then starting from January 12, 2009 we may see an increase in volatility. For me it means that if a month ago I started to spend less time in front of chart and step by step switch to last year summer's indicators setting then now I have to be again on the alert and monitor charts daily during the trading hours. It looks like it could be too early to relax.

Sunday, January 18, 2009

Dow Jones Industrials

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Another week is behind. Following my previous week "DOW Chart" post I may say that my worries abut further slide were confirmed. In that post I mentioned that the stock market is oversold and we may face a reversal soon, yet, I put a few condition that would be nice to meet before a reversal is confirm. One of this condition was McClellan Oscillator crossing zero line and the other one was presence of  negative MVO which would reveal the high volume surge (panic selling) during decline...

So, what do we have now? - We see that both of these conditions are met and we already saw some recovery. By taking a look at the same set of  technical studies I used a week ago I may say that technical analysis based on these indicators is Bullish. If a week ago the indicators show oversold market yet they were negative, then right now they still show oversold market but with Bullish sentiment which makes me believe that the odds are on the side of the recovery. The small exception is the S&P 500 index which is bullish but not as bullish as Nasdaq 100 and DJI indexes.

DJI chart
There are two positive factors for me that I would like to highlight.

a) The same as on October 9-13, 2008 and the same as on November 19-24, 2008 we saw high volume activity in the DJI sector on January 14-16, 2008. I always stated and I repeat myself - I associate high volume surge during decline as panic selling. Yet, because volume is always two side transaction and there is always a buyer for each seller, high volume during the decline tell us that the buyers started to satisfy demands of the panic sellers by buying from them in huge amounts and as a rule that leads to the shift in the supply/demand balance when those who wanted to sell already sold and do not push market down in panic any more.

b) Second positive factor is that in 2008 each time we had huge volume surge and reversal it was lower than the previous support level. This is the first time when we have huge volume activity which is above the previous support level. If we have a reversal now, this is going to be the first reversal which will set new support level that is higher than the previous support (support on November 21, 2008).

I usually do not give any advices, however, for long-term traders, for pension investors there is simple trading strategy which has only one rule: "Buy each time you see huge volume surge during price decline". As I mentioned in October 2008 (read my "Long-Term Investment" post) and as I stated in November 2008 (read my "DJI Analysis" post) I would say again - I consider it is good time to consider... Yet, if you believe that USA economy is going to crash further and never recover back, if you believe that this is only a beginning of the end (there is always a possibility) then you should stay away from any type of investment...

Again, I could be wrong and I'm not an investment advisor, so, do not trust me and do not trust anyone when you invest your money. Do not make any trading decision on what I told above - do your own home work.

Sunday, January 11, 2009

Dow Chart

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Last week (see my "S&P 500 Technical Analysis" post on January 4, 2009 ) I mentioned of a danger that could come from high volume expressed in high MVO in period from December 30, 2008 until January 2, 2009. At the same time I mentioned that I would expect to see a few flat session before the market may reverse. This exact scenario was played last week: Monday - Tuesday we saw almost flat market which pushed previously bullish technical indicators into bearish and neutral. If on Friday, January 2, 2009 my technical analysis was bullish, then by the end of the trading session on January 6, 2009 the same technical indicators on all three indexes I track (Nasdaq 100, DJI and S&P 500) were bearish (see chart below): SBV, MVO, Advance/Decline Oscillator and McClellan Oscillator - Bearish; MACD, Stochastics and RSI - from neutral to Bearish. As a result the rest of the week we had down market.

Now, at the end of the week my technical analysis still points me to the dominance of the bearish sentiment on the stock market: SBV is still moving down; Stochastics and RSI are still below 30 and 20 levels respectfully. Advance decline oscillator and McClellan oscillator are flat and may indicate the coming possibility of changes in the sentiment, yet, I would not bet on this until I see McClellan Oscillator crossing zero line and Advance/Decline Oscillator moving higher. It would be nice to see negative MVO (volume surge during the price decline) before reversal as well, yet, it's not necessary - we did not see red MVO before reversal on December 12, 2008 and December 29, 2008 and I may assume that we may see reversal without it again.

Dow Jones Industrial chart

So, what is going to be next week? - I do not know - I am not an investment advisor and I do not want to be the one. Several years ago I pass the test and did have a mutual funds investment license. At that time I could be considered as an investment advisor. Yet, I left that business after I discovered that majority of investment advisors know nothing about stock market and investments and their main job is not to help people with investments but sell products of the financial institutions. After, I was put in the "shame corner" by my boss for selling to one client what he needed instead of what would give bigger commissions I decided that it's not for me. Now, I can give you only one advice - do not trust anyone in investment business, not even me. If you want to invest you will invest your own money and you have to learn by yourself what is good and what is bad.

Sunday, January 4, 2009

S&P 500 Technical Analysis

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It's good to be right. Those who read my last week "Low Trading Volume" post saw my Bullish sentiment which is gracefully paid off now.

The indexes has broke the corridor described in my "Index Analysis" post on December 21, 2008 and they broke it by moving higher. This is one more evidence that the extremely huge volume surges in the middle of November 2008 have set very strong support level. Since November 21, 2008 the S&P 500 index has made 25% up, Nasdaq 100 indexes has recovered 24% and Dow Jones Industrial is 21%.

At the current moment my technical analysis has the same as a week ago results. Even if majority indicators show shorter-term oversold indexes, they are still Bullish. The real attention on my opinion should be paid to the high MVO from December 30, 2008 until January 2, 2009. This high volume may push indexes down, however I would not expect to see it until I see a few sessions of flat market. Furthermore, I would say that my technical analysis is Bullish and I would expect to see some more up and flat market. However, taking into consideration high MVO It could be smart choice to tighter trailing stop.

SP 500 technical analysis chart
Again, I repeat what I already stated hundreds times. This is my technical analysis and as any human I could be wrong. I can only give one advice - find nice chart and sharpen your skills.