Sunday, August 23, 2009

Short Technical Analysis

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Last week on Sunday August 16, 2009 in the "S&P 500 Analysis" post I have discussed the possibility of correction down. We had strong move down during the next 2 days (Monday and Tuesday). However, that was the only decline we had. The rest three days of the week we had strong recovery. It was strange exit from the correction. As a rule an end of a decline should be market by a volume surge, however it did not happened in this case. Still, on Wednesday majority of technical indicators became bullish and on Thursday's mooning all studies you may see on my chart snapshots (see my previous posts) were strongly bullish.

Now, the indexes run over the upper line of the sideway corridor they were in August. For many traders this could signal a beginning of a new possible up-move. As I mentioned before we are in the period when all news and reports are positive simply because the claimed at the end of 2008 expectations for 2009 were purposely lowered in fear of recession continuation. As a result, this positive news could continue to push market higher.

However, this is not my job to analyze news and all other economical factors that drive the U.S. economy. I do technical analysis and I follow technical indicators. If the results of technical analysis suggest up, I say "Up" if technical analysis is bearish I say "Down". In some cases there could be unexpected turns, however, for such occasion w have trend-following technical studies (lagging indicators) and we have higher timeframes that help us to define when it’s time to cut losses.

So, coming back to the charts and technical analysis I may say that by the end of this week the majority of indicators I use are still Bullish:
 - advance/decline oscillator is at high positive levels and is moving up;
 - RSI is above 70;
 - Stochastics is above 80;
 - McClellan Oscillator is almost flat and is at high positive level;
 - SBV Oscillator is positive and is at high levels which is a Bullish sign. However, it started to decline which shows some weakness;
 - MACD started to decline as well, yet it is still positive.

So far the only danger for the further up-move is high MVO on August 19-21, 2009 in the Nasdaq 100 sector and on August 21, 2009 in DJI sector. High MVO indicate high volume activity (volume surge). Volume surge during the price advance indicates greedy buying and strong greedy buying may reverse a trend. However, we do not see high MVO in the S&P 500 sector which is a positive sign.

Overall, my technical analysis suggest higher odds of further recovery, however, I would closely monitor charts over the next week. If I see flat market again I would say we could be back where we were in the first half of August – consideration of a possible strong correction down.

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