Light Volume Trading

I have mentioned several times over the last time about side-way trading and more conservative approach would assume waiting when upper or lower line of this corridor is broken. So, we have upper line of the 2.5% corridor broken (see my previous "DJI" post on December 20, 2009). However, not many indexes have run over this level and I would not run into conclusion that now only Bullish market is in front of us. We may see that the Nasdaq 100 index run strongly up. We may see that theS&P 500 index advanced above upper line. On the other hand the DJI index, NYSE Composite index and some other indexes are still in their side-way corridor. This is not a very nice picture when some of the indexes are rallying up while other indexes are stuck in side-way action and I think it tells that the current move up is not something that is supported by a whole market.

When a rally on some indexes is not supported by up-move in whole economy there are good odds that this move may halt soon. It usually happens when the market is ready for a correction, yet, it does not moves down because group of positive market sectors (positive indexes) holds other indexes on the same level (in the side-way corridor). If this is the only thing that hold the market from the correction down, then this rally on the Nasdaq 100 could become exhausted very soon and then what?

From the prospective of technical indicators, at this moment, the sentiment is positive and suggests possibility of further up-move. However, this is a holiday season, we have light volume and historically this period of year is marked by slow and positive trend. I would not expect to see any strong movement next week, yet, in January 2010, I think, we could be surprised...

DJI

The purpose of technical analysis is to predict a possible future trend movement and, as a rule, predictions are based on the comparing the history and applying the history research results to the current market. This week I would like to show a few charts of Dow Jones Industrial (DJI) index. I selected 10-year and 6-month chart to demonstrate where the main indexes are at the current moment in relation to the longer-term periods.

From the 6-month DJI chart (see the first chart) you may see that the DOW index has been trading in narrow (2.5% wide) corridor for a month. I believe this side-way action has made many traders impatient to see when this pattern is broken and many of them, I think, expect to see strong correction, which would be logical after such strong recovery. However, I would not rush into short trade without setting a tight stop-loss strategy.

If you take a look on the second chart below (DJI 10-year chart), you will see that the DJI index is traded at the level which is inside of the historically defined long-term corridor. In 1999-2001 the DOW index spent 18 months in 8% corridor (between $10,000 and $10,800) and in 2004 we had 12 month of side-way trading in the same corridor.

Can we assume that we may expect to see the Dow index traded in the same 8% corridor for prolonged period of time now as well? What could be a reason that the Dow Jones index was in that 8% corridor for such long period of time? Maybe this is the level where the real value of the companies listed in the DJI index is: the Dow listed companies are not under-evaluated and they are not over-evaluated. If this is true then it would explain side-way trading before and we can expect side-way trading in the same corridor for longer period of time again.

Now, coming back to the 6-month DJI chart, we may see that the DJI index still did not hit the top of this 8% corridor. Because of that, the exit from the current 2.5% side-way trading still could be up toward the $10,800 level. This is why even when I see technical analysis results suggesting down move I would not play short without tight stop-loss.

Chart #1: The DJI Chart 6-month view of the current 2.5% side-way corridor
Chart #2: The DJI Chart 10-year view of the historically defined 8% side-way corridor

S&P 500 Chart

It is a month as the market has been trading side-way (see the S&P 500 index chart below). I have already been pointing on sideway trading in my previous posts (starting from November 15, 2009: see my "Technical Analysis" post), and it looks like the market continues to follow this pattern. Last week in my "Sideway Trading" post on December 5, 2009 I expressed my expectation to see some action on exiting from side-way trading, yet, it looks like we had another bounce from the lower line of the side-way corridor and now the indexes (S&P 500, DJI and Nasdaq 100) are headed to the upper-line of this corridor (resistance line).

At the current moment, the majority of the technical studies on my chart are bullish. However, we are coming closer to the upper corridor line and up-move become weaker and we may face another bounce down.

Now, after 1-month of sideway trading I would not bet on up-trend until I see the indexes, at least S&P 500 and DJI, are breaking strongly the resistance line (not breaking it for 15 min period and a for a few points only). At the same time I would not bet on the down-trend until I see the same indexes moving below the lower line (support line) of the sideway-corridor. The indexes have been trading in this corridor long enough to assume a possibility that overbought sentiment accumulated in the first half of November is not in force anymore and most likely it will not push the market down. Now, on my opinion, the longer-term sentiment is the only force that may push the stock market down. We may see that since July 10, 2009 the main indexes (S&P 500, Nasdaq 100 and DJI) were in the strong up-move and we may assume that they could accumulate overbought sentiment and without a new fuel (new investors coming into the market) we could face a strong correction (at least the same as we had in second half of June 2009).

Still, since we do not know what exactly may happen, we may wait for clearer and stronger signals. At least this is my view and my position on the current market.

Chart #1: The S&P 500 Chart with elements of technical analysis:

Free Quotes

This is just a quick post. I saw some free data that could be interesting to somebody and I would like to share the info.

I'll try to post my regular report today afternoon. Meanwhile, If you are interesting in some free data you may find free index quotes at the quote section of MV(http://www.marketvolume.com/quotes/). As a rule they do not show volume and advance decline quotes to the general web surfers and require "free trial" registration at least to see these quotes and data. However a few day ago they have opened access to the general public and you may monitor index volume and advance/decline data for free without any registration.

Below you may see snapshoot of some quotes pages.

At http://www.marketvolume.com/quotes/index.asp?s=SPX you will find free index quotes including volume and advance decline quotes

S&P 500 Index (^SPX)
Last Trade	1106.58		Advanced Volume	1,900,459 K
Trade Time (ET)	12/11/2009 16:00		Declined Volume	699,061 K
Change	4.41(0.40%)		Unchanged Volume	32,205 K
Previous Close	1102.17		Total Issues	500
Open	1103.96		Advanced Issues	315
High	1108.5		Decline Issues	121
Low	1101.33		Unchanged Issues	64
Volume	2,921,573 K		New Highs	46
Up Volume	1,647,332 K		New Lows	0
Down Volume	1,236,660 K		TRIN	0.96

Athttp://www.marketvolume.com/quotes/technical_analysis_price.asp?s=SPX y you my see price free based technical quotes.

S&P 500 Index (^SPX) Exponential Moving Averages Analysis

Indicator	Last	Change	Sentiment*
5-day Exponential Moving Average	1,101.95	2.28 (0.21%)	Bullish
10-day Exponential Moving Average	1,101.21	1.17 (0.11%)	Bullish
20-day Exponential Moving Average	1,097.76	0.92 (0.08%)	Bullish
50-day Exponential Moving Average	1,080.81	1.05 (0.10%)	Bullish
130-day Exponential Moving Average	1,031.35	1.17 (0.11%)	Bullish
260-day Exponential Moving Average	1,020.10	0.67 (0.07%)	Bullish

S&P 500 Index (^SPX) MACD(12,26) Analysis

Indicator	Last	Change	Sentiment*
EMA(12): Fast Exponential MA	1,100.76	1.04 (0.09%)	MACD sentiment is Bearish , although MACD Histogram moves up, it may indicate the possibility of coming changes in MACD sentiment
EMA(26): Slow Exponential MA	1,094.87	0.93 (0.09%)
MACD (12,26)	5.90	0.11 (1.94%)
MACD Signals: EMA(9) applied to MACD	7.70	-0.37 (-4.53%)
MACD Histogram	-1.81	0.48 (-20.91%)

S&P 500 Index (^SPX) Stochastics Analysis

Indicator	Raw Stochastics	Stochastics %K	Stochastics %D	Sentiment*
9-day Stochastics	62.00	48.31	40.31	Bullish
14-day Stochastics	64.31	50.11	41.26	Bullish
20-day Stochastics	64.31	50.11	42.48	Bullish

S&P 500 Index (^SPX) RSI (Relative Strength Index) Analysis

Indicator	Average Gain	Average Loss	Relative Strength (RS)	Relative Strength Index (RSI)	Sentiment*
9-day Strength	3.78	2.57	1.47	59.58	Bullish
14-day Strength	4.12	3.04	1.36	57.59	Bullish
20-day Strength	4.04	3.07	1.32	56.82	Strongly Bearish

Athttp://www.marketvolume.com/quotes/technical_analysis_volume.asp?s=SPX y you may see free volume based technical quotes.

S&P 500 Index (^SPX) VO, PVO and MVO (Volume Oscillators) Analysis

Indicator	VO*	PVO*	MVO*	Sentiment**
9-day Volume Oscillator	0.89	-11.46	0.00	No abnormal volume activity
14-day Volume Oscillator	0.91	-8.85	0.00	No abnormal volume activity
20-day Volume Oscillator	0.90	-10.11	0.00	No abnormal volume activity

S&P 500 Index (^SPX) MFI (Money Flow Index) Analysis

Indicator	Positive Money	Negative Money	Money Ratio (MR)	Money Flow Index Index (MFI)	Sentiment*
9-day Strength	19,464,228 M	16,174,684 M	1.20	54.62	Bullish
14-day Strength	25,424,639 M	24,840,144 M	1.02	50.58	Bullish
20-day Strength	39,849,790 M	32,077,759 M	1.24	55.40	Bullish

Athttp://www.marketvolume.com/quotes/technical_analysis_advancedecline.asp?s=SPX you may see free advance decline technical quotes

S&P 500 Index (^SPX) Advance/Decline Sentiment Analysis

Indicator	Last	Sentiment*
Advance/Decline Issues Ratio	2.60	Positive
Advance/Decline Issues Percentage Oscillator	44.50 %
Advance/Decline Volume Ratio	2.72
Advance/Decline Volume Percentage Oscillator	46.22 %
Advance/Decline Sentiment	72.68 %

S&P 500 Index (^SPX) TRIN Analysis

Indicator	Last	Sentiment*
TRIN	0.96	Trading activity in advancing stocks is approximately the same as in declining stocks
Average Volume per Advancing Stock	6,033 K
Average Volume per Declining Stock	5,777 K

There are more to quotes to chose from....

Sideway Trading

The indexes have been trading side-way since November 16, 2009. If you take a look at the Nasdaq 100, S&P 500 or Dow Jones Industrial charts you will see that since November 16, 2009 the main swing happened at the market open and majority of the time the indexes were traded side-way and basically they are at the same level were they three weeks ago.

The sentiment on the stock market becomes more intense. Second time since November 16, 2009 we may see increase in volatility which is not a very positive sing. The last trading session on Friday December 4, 2009 was quite contradictive - very volatile and on high volume - on lower time-frame index charts we may see bullish signals and on higher time-frames charts we may see bearish signals.

I would not say that the technical analysis is bearish at this moment. Majority of technical indicator are bearish at and taking into account an increase in volatility the one could say that the odds of the developing a strong correction are quite high. On the other hand, over the last weeks we saw very sudden changes in the sentiment when at the market close the indicators were bullish and on the next trading day at the opening the market was deeply down or indicators were bearish at the market close and on the next trading day at the open the market was strongly up.

Overall, I would say (strictly my opinion) that the bullish indications on intraday index charts are not letting me to trade short. At the same time bearish signals on higher time-frames make me scary to be in a long trade. In general, I would expect to see strong correction down, yet, intraday Friday’s strong bullish signals are somehow unexpected and do not fit in the general picture of the sentiment. Furthermore, I would stay in cash for a while. I think the coming week could be very interesting and define the trend. I consider that it is better to make less profit than go into a gambling.