DJI Chart

I have expressed in my last week three factors worth of attention. One of them was the indexes (S&P 500 and DJI) moving sideways on the January 6, 2009 high levels. The recent bounce down from these levels confirms that these resistance lines indeed are sensitive for many traders.

While shorter-term charts and technical analysis are positive and show some odds of possible move up to the recent high levels (June 11, 2009 highs), the longer-term charts and analysis are not as optimistic. From the chart below you may see the significant drop in the daily volume which means that the main players (long-term institutional investors – "Big Money") finished investing (relocating funds) into the stock market. Starting from February 19, 2009 these institutional traders were attracted by the bargain cheap price of the under evaluated stocks and were buying in huge volumes. Their buying power was the main engine that pushed the stock market up. Now, when their buying power became somehow exhausted (trading volume become lower) we may expect the stock market trend be more dependable on the smaller players’ sentiment. I would put a question in this way: "Are the long-term non-institutional traders (who have a lot of money but not big bags) encourage the March-June rally up or they consider that they may enter the market later at lower price or when they are more confident?"

The positive thing is (I repeat what I mention in my several past posts) that the volatility is down. That means that even if we see strong correction down it’s not going to be unexpected sudden 10% drop down and most likely majority of the technical studies including trend-following indicators will be able to signal this correction. Actually, I consider that the trend following indicators could be the best in this situation. We already may see some negative money flow; we may see some overbought conditions; we understand that even for the further healthy recovery a correction down would be ok – all we need a confirmation from the trend-following technical analysis.