DJI Chart

A week ago in "New Bailout" post on February 1, 2009 I have mentioned that the market is heavily oversold and possible run up. That was exactly what happened past week, however, there is some points that make me cautious. When I do not have certain degree of confidence I prefer to watch. Here they are:

• I do not like that during the last up move the NASDAQ 100 recovered almost to the January 6, 2009 high (highest level after November 21, 2008 bottom) while the S&P 500 and DJI indexes are still close to the lowest support levels and they are still far from the January 6, 2009 high.
• I do not like that the last up move we saw this week was supported by very high volume (especially in DJI sector). No doubt that institutional players were in game and I am not sure what they were doing. Volume is always two side transaction and we have volume only when we have buyers who satisfying sellers and I'm not sure on what side institutional traders were: a) they were buying because they know that the recovery will continue or b) they dump before decline.

Because of these two points I think I will wait until I see how market react on this high bullish volume - will this volume be ignored? or will we see decline? Taking look at the technical analysis of the hourly charts (1 bar = 1 hour) I may say that despite the disharmony in the recovery between Nasdaq 100 and DJI with S&P 500, the technical indicators an all these three indexes show basically the same picture and the same sentiment. Furthermore I would refer to DJI chart again, since the volume surges were most expressed on this index.


 Almost all of the technical studies on the DJI chart above still show positive sentiment, yet, at the same time they show that the market is overbought at this stage. Exception is RSI which is still on the up move. MVO is growing up by emphasizing the overbought condition. By ignoring what I say above I may say that this chart is still positive and suggest possibility of the further recovery, yet, with elements of overbought market which may push indexes lower. Based on the past experience I would not expect to see down turn until I see some flat market, MVO decline to zero, McClellan crossing zero line, SBV and Advance/Decline Oscillator decline.