Saturday, May 2, 2009

Index Technical Analysis

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Another week of almost flat market is behind. The Dow Jones Industrials is only 1.7% up from the previous week close, the Nasdaq 100 index gained 1.7% up as well and the S&P 500 index moved only 1.3% up from the previous week close. It would be wrong to say that this is a positive market; as well it would be incorrect to call this market Bearish. Starting from the April 2, 2009 the DJI index is in almost flat market (see my previous "S&P 500 Chart" report on April 25, 2009). The S&P 500 index did start to move side-way on April 9, 2009 - almost a month ago as well. The Nasdaq 100 index that was less affected by the recession (no financial stock in this index listing) was one of the most Bullish indexes, yet, still almost flat.

So what is going on the stock market from the technical analysis point of view? The stock market has been extremely oversold in all terms during the recent recession. In additions many of the stocks (companies), because of the crisis in the financial sector, were traded below its actual value (they were under evaluated). As a result we had strong recovery movement in period from February 9, 2009 until April 9, 2009. Any strong movement up leads the market into at least short-term oversold condition when the first wave of the investors who wanted to invest into underpriced stocks become exhausted and the second wave of the investors is not coming very fast to keep up-trend moving. For further healthy recovery the stock market needs to be released from these oversold conditions, attract more investors and that is why healthy bullish market supposes to have corrections.

We had one month of up-move and now we have one month of side-move. The same as last week I would say that I’m still in bullish mood, still I may consider possibility of some correctional movement down. Even if my technical analysis is correct and we see drop down, I would not expect it to be strong and prolonged in the time, but rather shallow and short lived.

There are several factors that make me believe in that:

1. Over the last month, by looking on the short-term index charts I may say that according to my short-term technical analysis the indexes very actively reacted on every (even small) volume surge to the index downside by immediate reversal up-move.
2. From the same short-term technical analysis I may say that there were number of occasion when bearish signals were ignored and price continued to move flat or up.
3. The stock market started to ignore negative news. Even we hear and see every day complains about swine flu and Chrysler bankruptcy and TV financial "gurus" are making statements that it negatively affects the market – we still have not seen any strong movement down.

This is one of the characteristic of the long-term bullish market when the majority of investors ignore bearish signals and negative news. In opposite every positive news and bullish signal attract investors to come back into the market and start to invest by buying.

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