Sunday, August 30, 2009

Swing in Trading

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The last week of August was flat. The indexes already were in the side-way trend during the first two weeks of August - see the S&P 500 chart in the "S&P 500 Analysis" post on August 16, 2009. Then we had some up-move and again a week of side-way trading.

The indexes did not run far above the corridor I draw in the same post "S&P 500 Analysis" post. The Nasdaq 100 index is moving just above the upper level of the sideway corridor we saw in the beginning of August. The S&P 500 is about 20 points (2%) higher and the Dow Jones Industrial index is about 120 points (1.5% roughly).

It looks like the strong recovery we witnessed in period from August 18 until August 21, 2009 has become exhausted very fast. If by the end of the last week we had positive sentiment on the market (see my "Short Technical Analysis" post on August 23, 2009) then now I would not bet on it. I mentioned a week ago in the same post that if we have flat market we could be considering of a possibility of a stronger correction down as we did it during the first two weeks of August.

Especially what makes me worry is Friday’s trading – on August 28, 2009 we had strong positive opening and then similarly strong decline. If you have access to historical charts I would recommend you scrolling charts back in history for side-way moves and swings above all resistance levels and back down during those side way moves. I could have only one explanation of such move – there were stop-loss orders of Bearish traders just above resistance levels and because stop-loss orders are considered by the market as a demand to buy (to cover short position) the market did not hesitate to hit those levels and fill orders of other Bearish traders who was not in the position and wanted to sell at higher levels. Because the Friday’s strong opening was not supported by Bullish traders, the pressure of Bearish traders pushed the indexes back down. I hope my explanation is not very complicated, just take look at historical charts and check what usually occurs after such swings during a side-way market.

Coming back to the technical indicators on hourly S&P 500, DJI and Nasdaq 100 charts I traditional discuss in my weekly posts, I may say that by the end of the week:

  • SBV is neutral – it is flat around central zero line;
  •  Advance/Decline oscillator is positive – it advances after hitting low negative levels;
  •  MACD is bullish – it moves up and just crossed zero line;
  •  RSI and Stochastics are moving up which is positive sign, however they did not hit oversold levels. Furthermore, I would say that these indicators are only slightly bullish;
  •  McClellan Oscillator is negative, however it shows some positive sign by starting to move up.

Overall technical analysis of the hourly index charts is positive, however I would not expect strong up-move and would monitor charts for changes in the sentiment.

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