S&P 500 Rally Up

We had another week of strong rally up. The stock market already show short-term overbought levels last week. Still, the S&P 500, DJI and Nasdaq 100 indexes rallied up without any correction serious short-term correction down… It is not healthy when market goes up for a long time without any correctional movement.

The Dow Jones Industrials just passed its November-December 2008 highs. The S&P 500 index ran over those levels without stopping and is a few points below its November 4, 2008 high. The Nasdaq 100 index, not loaded by financial and automotive companies, run over all these sensitive levels and the next line for this index goes through March 2008 Lows – March 2007 Lows – April 2006 Highs – January 2006 Highs.

Yes, if we take a look at longer-term charts (7-year chart, 5-year chart, 3-year and even 1-year chart), we may see that technical analysis on them is bullish. Majority of technical indicators on these longer term charts are positive and show development of the longer-term up-trend. However, if you take a look at shorter-term charts (60-day chart and lower) you may notice that the indexes on those charts are overbought and at least short-term correction would be very healthy for the stock market. One of the rules of technical analysis is: the longer market goes up without a correction the stronger correction could be.

During the last two week of rally up we saw increased volume activity which would indicate greedy buying. It looks like Investors were running into the market on the positive reports – numbers have exceeded the expectations that "were purposely lowered at the end of the last yea". When this wave of greedy investors becomes exhausted we may face a possibility of strong move down. As a rule greedy buying does not stop suddenly and market does not reverse down sharply (in opposite to reverse up from down-trend), but we may see sideway move first. Actually, over the last two trading sessions we may see some signs of that.

So, over the last week we run into several occurrences when price based technical indicators on hourly charts (60-day chart) already signalled a possibility of the down-move. Even Advance Decline Oscillator and McClellan Oscillator pointed to a possibility of the correction. Only SBV(20) on the 60-day chart remained positive by showing the positive money flow. Below you may see this week chart and how technical analysis looks by the end of the week.

S&P 500 again

Nice week of positive market we had. The indexes reacted by a strong rally up on the big volume surge during the price decline on July 8, 2009. Now, we may see some picture opposite to the one we saw a week ago. Now, we have nice volume surge during the price advance (see green MVO).

Basically there are two main factors that should be paid attention to: high volume during the recent advance and the resistance line that is hit by the indexes (S&P 500 and DJI in particular).

Right now the indexes are at the same resistance levels they were in beginning of June, 2009. I will repeat what I mentioned in my previous “Volume Technical Analysis” post on July 15, 2009 that the current resistance line could be extended back to December 2008. The indexes spent some time moving around this line and then reversed down in December 2008 and in the begging of June 2009. Furthermore, this level could be considered sensitive to many long- and mid-term traders and there are good odds we may see indexes moving sideway at this level again with possible bounce down.

Second factor of high volume surge during the price up-move witnesses that the there is a possibility of overbought market (at least in short-term). This should halt the recovery and possibly may push indexes down again.

Regarding other technical studies you may see on my chart (see below) I may say that

1. The SBV Oscillator readings are still at high positive levels which is a bullish sign. However, we started to see some changes in the SBV direction, which would point to the beginning of changes in the money flow;

2. I have already mentioned about big green (positive) MVO that points to the high volume surge during the price advance. This volume surge may cause changes in the supply/demand balance and as a result it may lead to reversal.

3. Advance/Decline Oscillator is in the declining mode and is Bearish (it started to decline on Friday). From this we may say that, now, investors (traders) are not focused on the advancing stocks as they were in the beginning of the week. If the A/D Oscillator continues to decline into negative territory we may say that traders become more attracted by declining stocks.

4. RSI and Stochastics suggest overbought market. However, they are still bullish by moving above 70 and 80 lines respectfully.

5. McClellan Oscillator crossed zero line on its way down and this is a Bearish signal.

As you see, overall, my technical analysis is not Bullish. It is difficult to say that it is Bearish either. I would say that in short-term the indexes are overbought and we may see a correction down. Yet, some of the technical indicators are still Bullish and we still may see some sideway- and up-move prior to a correction. If the indexes (S&P 500, Nasdaq 100 and DJI) go flat I would watch the sentiment closely, since it may push sentiment into bearish mood.

Volume Technical Analysis

Those who follow my blog may notice that in most cases I write to my blog during Saturday-Sunday. Today, I just would like to make a short post to follow my Sundays "S&P500 Chart" post.

On Sunday I mentioned: "The volume surge on July 8, 2009 was quite big … since the middle of the May 2009 the average volume is down and in relation to this volume the volume surge on July 8 could be considered big. I would say that because of this volume, we may see up-move for a couple of trading session. If it happens I would recommend monitoring charts more closely."

Over the last three trading sessions we had a strong up move. Even I did not expect such strong recovery - it is good to see it. It is always good to make double return from what you expected. There is no doubt now that the volume surge on June 8, 2009 (that I pointed to) marked the reversal. Indeed the volume based technical analysis could be "money making machine".

Now, I would like to drag your attention to the resistance levels we saw indexes at in the beginning of June. I'm sorry, I do not post chart today (I'll try do it during week-end), but if you take a look on 1-year daily (1 bar = 1 day) chart of the DJI and S&P 500 indexes and extend these resistance lines you will see that the market had the same resistance levels in December 2009. Because the market indexes spent a lot of time around those levels I consider them very sensitive to many long- and mid-term traders. As a result I would expect to indexes moving around those levels again. It is not necessary has to be that way (keep in mind that this is my personal opinion based on my personal technical analysis). Yet, I would closely watch the indexes over the next couple of sessions, especially after today's high volume – if you look at MVO (MarketVolume Oscillator measures amplitude of a volume surge) you will see how big it is.

A few days ago I have drugged your attention to the high negative MVO reading on July 8, 2009, now I attracting you to high positive MVO readings … (you may see MVO on MarketVolume.com charts).

S&P 500 Chart

Last week I was bearish (see my previous week "S&P 500 and DJI post")– not as much this week. This week we saw nice volume surge during the price decline - see red MVO (Market Volume Oscillators shows how big volume surge is in relation to the recent average volume). I mentioned last week in the same post that it would be nice to see a volume surge which could mark the panic selling during the decline and possibility of reversal. Now the question is if this volume surge is big enough to reverse the market from the correction.

The volume surge on July 8, 2009 was quite big, yet not as big as the one on May 20, 2009, May 6, 2009 or April 20, 2009. However, since the middle of the May 2009 the average volume is down and in relation to this volume the volume surge on July 8 could be considered big. I would say that because of this volume, we may see up-move for a couple of trading session. If it happens I would recommend monitoring charts more closely. The other technical indicators (beside volume and MVO) on the hourly charts are mostly bullish as well and I would say that my technical analysis shows good odds for the S&P 500 index running over 900 and the DJI index going above 8,400.

However, the correction we have now is quite big and prolonged (I have alerted about it almost two months ago) and it is difficult to believe (still possible) that this single volume surge may mark the end of this down move. That is why I would recommend monitoring charts over the next couple of sessions. If the recent volume surge is ignored and the indexes go down again then I would consider the stock market in serious trouble. If at this moment hourly charts (1 bar = 1 hour) are more or less bullish then I would not say the same about longer-term charts. I you take a look at 3-year chart (1 bar = 3 days) you may see what I mean – the next check point for the S&P 500 and DJI indexes could be April 21, 2009 lows (I do not mentions the Nasdaq 100 because it nos heavy loaded by financial and automotive companies that trouble the market).

Chart 1: S&P 500 hourly chart with elements of technical analysis

S&P 500 and DJI

The stock market is down this week. As I expected in my previous week "S&P 500 Technical Analysis" post the indexes were Bearish. The S&P 500 and Dow Jones Industrials have moved close to their June 23 - 24, 2009 lows. The Nasdaq 100 index was less negative and still stays close to its highs.

If the June 23-24 lows (which I would not named as very critical and difficult level) are broken, then the next, much more sensitive support level is on the line of May 13 and May 21, 2009 lows. I call this level sensitive to many investors because if you draw the horizontal line touching those support points you will see that starting from May 4, 2009 the DJI and the S&P 500 indexes were traded above this line. That means that all mid-term and long-term traders who opened long position (bought stocks) in this period of time (from May 4 until now) are going to be in the losing or zero profit position. We may assume that over the last two months (from May 4 until now) there could be quite a big number of long- and mid-term traders who went long. As well, we may assume that the odds are good that some of them set stop-loss levels around May 13 and May 21, 2009 support line. Since the volume is down and we have not seen high volume surges during the index decline, I may assume that majority of them are still have position opened and their stop losses are not hit yet. At the same time a low daily trading volume may witness that investors calmed down after the strong rally in March-April 2009 and some of them could wait for better bargain price to enter the market. As I mentioned in my previous post it would be nice to see some volume surge during the price drop which could mark the end of the correction, however, so far we have not seen it. This volume surge would mean that the price drop to the level that become attractive to many investors to start buying from sellers that are pushing the market down since the middle of June.

As you may see my longer-term technical analysis is still a little bit bearish. Some of my assumption could be strange to someone. However, this is how I look at the stock market. One of the aspects of my longer-term technical analysis is to find out from the supply/demand point of view what long-term and mid-term traders are doing. I am not talking about simple traders like me, but about those who has big bags of money and whose steps are represented on the chart by volume spikes. That is why I consider volume based technical analysis very important – it shows actions of big players.

I am sorry I do not post a chart this week. I will try to id in my next post. From the short-term technical analysis point of view the indexes are still negative at this moment. We still may see slide down. However, I would closely watch charts during the trading day since the short-term sentiment can change sharply.