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.