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.