Advance/Decline Signal

Last week, on September 30, 2009 in my "Short Analysis" post I have pointed to the increased volatility as a bearish sign. The next two days after that (October  1-2) the market (indexes) had declined.

Right now taking a look at the same set of technical indicators on the hourly S&P 500 chart (Nasdaq 100 and DJI charts are similar to the S&P 500 chart) I may say that right now, the technical analysis shows the dominance of the bearish sentiment on the market:
- The SBV Oscillator is at low negative level and this is a bearish sign. Yet, it stopped declining and it moves sideway which may point to a possibility of coming changes in the trend in a near future;
- The Advance/Decline Oscillator at low negative level which suggest the dominance of bearish traders, yet, we may see that it started to move up, which suggest that bullish traders slowly started to enter the market.
- RSI is clearly negative – it just declined below 30.
- Stochastics is negative as well, yet it has been under 20 line for 2 trading sessions which would suggest some oversold condition.
- McClellan Oscillator is negative - it is still in the red territory.

As you may see the technical analysis is not a bullish at this moment and would suggest the higher odds of further slide. On the other hand we had some strong positive leading signals that suggest a possibility of coming reversal:
1.We may see very strong bearish volume surge during the decline on October 1, 2009 (see MVO) which would point to the panic selling. On the next day on October 2, 2009 we had normal trading volume and that point that the panic selling could be over and we may see a reversal.
2. We saw very strong oversold Advance/Decline signals on the main indexes (NYSE, S&P 500, DJI and Nasdaq 100) on October 1, 2009. As a rule, such low Advance/Decline readings lead to a reversal.
3. We may see some decline in volatility which is a positive indication.

Overall I would say the may technical analysis results are bearish, yet, there are some strong signals of a possible reversal and, personally, I would more closely watch charts over the next couple of days and I would consider that it could be too risky to be in a short position without tighter stop-loss at this time.

I will try to post a chart next time. Meanwhile you may check the chart setting I use in my previous posts.