S&P 500 Advance/Decline

Last week in my "Technical Analysis" post on November 15, 2009 I have expressed a possibility of a correction down. Yet, at the same time, I have mentioned that I would not wait for a strong move down, but rather for a short-term decline. Now, after 3-day decline on November 18-20, 2009 we may say that we had a shallow decline: the Dow Jones Industrial is 1.1% down from its high, the S&P 500 is 1.7% down and the Nasdaq 100 dropped for 2.6%.

I think that this is a time to check the index charts again to see if the current decline may grow into a bigger and stronger correction. Last week I brought to attention two points that would suggest only a short-term correction: a) absence of bullish volume surges during the November 2-13, 2009 up-move; b) low volatility. Taking look at the same indicators one week later, I may say that we still have not seen any high volume during the price advance (MVO remains at zero), and in addition, even the last three day of negative trading did not bring any increase into volatility (ATR and VIX index remain at the same levels they were a week ago). So, these two factors would still suggest that the current correction should be a short-lived only.

Now, taking a look at other indicators I may say that technical analysis is mostly bearish: SBV is flat and negative, Advance/Decline Oscillator and McClellan Oscillator are at low negative levels, Stochastics is below 20. All of that would suggest higher odds of further decline. There are still a few positive signals: RSI just crossed 30 line on its way up and MACD is close to move from negative into positive area. The other positive sign is high volume during the price decline on November 20, 2009 (see red MVO), yet it is difficult to say that this was a strong bearish volume. Overall, technical analysis is bearish at this moment.

Despite the fact that technical analysis is bearish I would still stay on the same note I was a week ago - current decline may not be a strong. Furthermore, I would not bet on short trading. One more factor that gives me more confidence in not believing in strong decline is very low advance/decline quotes on the S&P 500 on November 19, 2009. I have already mentioned in my "Advance/Decline" post on November 1, 2009 the importance of the S&P 500 advance/decline issues and volume quotes monitoring. The low advance/decline readings in the S&P 500 index suggests strongly oversold condition that usually could be seen before a reversal up (unless it is a recession or stock market crash). We had low advance/decline quotes on October 28 and 30, 2009 and strong up-move after that. At that time, on November 1, 2009 I pointed to good odds of the up move. The same is now, because of the very low Advance/Decline quotes reading in the S&P 500 sector on November 19, 2009 I would consider that the odds are good that up-move may be resumed in near future.

I am sorry I have not brought chart snapshoot this time. You may see the chart setting I usually use and indicators I mentioned above in my "S&P 500 Chart" post. I would highly recommend checking charts and quotes by yourself before relaying on anything I say.