Sunday, February 22, 2009

DJI Volume

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In spite my last week neutral to slightly positive outlook (see "Technical Analysis" post on February 15, 2009) the market crashed during this week strongly down. If last Friday majority of my technical indicators were mixed with small dominance of positive sentiment, then on Monday February 17, 2009 right after the market opened all of them became negative.

It's like a "black irony" - right after the first bailout was announced back in September 2008 the market went strongly down. Now, again, when Wall Street smells the money it crashes market down by making a statement "I need a piece of pie"... Could it be that the recession will continue as long as we pump money into the Wall Street? We are trying to cure the "Monster" by giving him what make him sick in the first place and by hoping that he will recover very fast. Could it be that only when we stop feeding the "Monster" he will realize that help is not coming anymore and he start recover slowly but steady?...

It was some attempt to be ironic, but let us go back to the numbers and take a look what we have now on the stock market. Take a look at some statistics:

Index November 2008 Low October 2008 Low
Main Group
DJI Below this level Below this level
Nasdaq 100 Above this level Above this level
S&P 500 Above this level Below this level
NYSE Above this level Below this level
NASDAQ Above this level Below this level
AMEX Above this level Above this level
Other indexes
Dow Jones Transport Below this level Below this level
Dow Jones Utilities Above this level Below this level
S&P 100 Above this level Below this level
S&P 400 Above this level Almost the same
S&P 600 Above this level Below this level
Russell 1000 Above this level Below this level
Russell 2000 Above this level Below this level
Russell 3000 Above this level Below this level

By scrolling through the table above can we make an assumption that the recession has stopped for majority of the public companies back in October - November 2008 and only big monsters who are not profitable and not flexible enough to restructure its production (DJI and DJT companies) are drugging the stock market further down? Shouldn't we let them die and let other companies to grow on their ashes? Isn't the purpose of the recession to clean the market from old not profitable companies and let the new to be built?

Another interesting fact is that daily volume on Friday February 20, 2009 was third biggest daily volume in the history of DOW. The only biggest volume in Dow Jones Industrial sector was seen on September 16, 2008 (on September 19, 2008 the DJI index was 7% higher) and on October 10, 2008 (on October 14, 2008 the DJI index was 10% higher).

I think this volume is very important and indicates extremely high panic selling in the DJI sector and at the same time it shows that somebody started to satisfy the demands of the panicked traders. Who is buying from those investors who are panic? - I do not know. Could it be the Government started to buy by using second part of bailout money set in October 2008 in order to take a control over these companies? If yes, then I would consider that they are smart... But it does not really matter for me as an investor. All I know that such huge volume surge marks the bottom when those who wanted to sell in panic are satisfied and the number of willing to sell is dramatically reduced and we will see the market up in a couple of trading sessions. I’m really scary for those who went short on Friday 20, 2009 and I would not like to be on their place now.

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