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US Dollar continue to rize

As I mentioned over the last couple of days: with volatility at these high levels, we should be ready to strong and sudden swings. High Volatility always have been a sign of mid- and longer-term bearish mood. On Sunday in my "Side Way Trend on Indexes" post I have pointed to the few signs that suggest dominance of mid-term Bears. Lets see if they will be able to break the low seen on November 16, 2010 on the S&P 500 and Nasdaq 100 - DJI's low was broken yesterday. Or it will be another session of strong swing at the morning and then side-way trading for the rest of the day (as we had over the last two weeks).

US Dollar index is up, and it looks like nothing will hold it from moving higher to the August 2010 levels. Stronger dollar is another force that support bearish trading.

I'm moving from 15- and 30-min harts to the 5-and 15-minutes time-frames. One of my rules is to lower time-frame on higher volatility or reduce bar period settings.

Dollar Up, Indexes Down

Despite the fact the emini index futures were positive yesterday afternoon, as I expected (see "Side-Way Trend on Indexes"), the indexes are down today.

The money flow on the 15- and 30-minutes charts continue to stay negative. Money flow on hourly charts is still continue to be neutral, yet, it slightly tends to become negative. If it happens, I would expect further and stronger drop.

The US Dollar index is up and this is playing on the hand of bearish traders.

I'll continue staying on the 15- and 30-min charts.

What to Expect?

The past week was short (Thanksgiving week had three full trading sessions and one short trading session), yet, quite volatile. Actually, we may consider that since November 18, 2010, the DJI and S&P 500 are in side-way volatile action. The Nasdaq 100 index (mainly because of the swing at the morning on November 24) is only about half of the percent higher.

While the main indexes (S&P 500, Nasdaq 100, DJI and Russell 200) are topping sideway, there are some indexes that are in clearly defined down trend - as an example, see Dow Jones Utilities index that could be considered in down-trend since October 20, 2010 and S&P 500 Financial index that has been moving down since November 4, 2010. Overall, lately we had mostly negative and side-way sentiment.

Taking look at technical analysis from the mid- and long-term prospective we may not see a lot of positive signals. The money flow on daily charts (1 bar = 1 day) is moving down. It is not negative on the S&P 500, DJI and Nasdaq 100, yet, it is close to become negative. After September-October rally up, the indexes could be considered quite overbought. Yes, some traders may say that the correction we had during the second week of November could be enough to release the stock market from its overbought pressure, yet, it is difficult for me to believe in that by the following two reasons:

- Some indexes are still in decline.
and
- We did not have any strong volume volume surges during that correction (with exception on the Nasdaq 100). The correction down does not ends on low volume. In most cases corrections down and down-trends have strong volume surges at the bottom and we have not seen it yet.

Overall, I'm still bearish over mid-term. However, I numerously mentioned in periods of side-way trading that when there is a clearly defined upper and lower line of side-way corridor (as it is now on the S&P 500 and DJI) it is always a good trading strategy to set a stop-loss.

From the short-term prospective, technical analysis is not positive as well. The money flow on 1-min, 5-min, 15-min and 30-minutes charts is negative. It is neutral on hourly charts. I would expect to see negative trading session tomorrow. However, we should remember that volatility is at high levels and we may see strong swings in either direction. Personally, I plan monitoring 15-min and 30-min charts tomorrow.

Another swing down

It looks like we will have another swing down. We had 2% up on Tuesday, 2% down on Wednesday and now again down... High volatility in most cases is a sign of bearish sentiment.

We will have today short trading session (until 13:00 EST). With luck of bog economic reports we could be looking for trading on low volume.

US Dollar Up - Stok market Holds the gain

It looks like I was wrong and the indexes did not pulled down, but moved side-way. the money flow an all intraday time-frames is positive. Third time the S&P 500 and DJI are coming close to their highs seen on November 18 and November 19. If those highs are broken, the odds could be good we may see indexes running up to the highs seen on November 5th. Under those conditions, I would set tight stop-loss for short position.

US Dollar index has recovered from today's morning negative trading, yet, indexes manage to hold the gain and did not dropped. This is not good sign for Bears as well.

Right now, I'm on 15- and 30-min charts. Money Flow on the 15-min charts started to decline (yet still in positive area). Lets see if the 30-min money flow follows it.

Bear in mind that the volatility level is high and we may see sudden strong moves.

Another point worth mentioning is that we have extremely strong Bullish Advance/decline reading. On Nasdaq 100, all 100 stocks are traded above their yesterday's close. Advance/Decline readings on the S&P 500 and NYSE composite index are at very high levels as well. In many cases such strong readings could be seen before strong down-turns.

Yesterday Down, Today Up...

Two percent down yesterday, two percent up today - volatility is growing. This mean that traders are nervous.

The Us Dollar is down today. It is interesting to watch this, as S&P 500 continues to mimic opposite trend of US Dollar Index.

Right now, I would expect to see some decline within the next hour (watch for a decline in money flow on 5-min chart). If it happens I would watch money flow on 15- and 30-min charts.

I would not make any bets on options today. The long weekend with short trading session on Friday is not good time to hold position in options.

Dollar Up - Stocks Down

As I mentioned yesterday, despite the fact that some technical indicators show bullish signals on intraday time-frame, sometimes it is useful to take a look at longer-term time-frames. Yesterday’s bullish signals were caused by the yesterday’s afternoon rally. Yet, when longer-term sentiment is bearish we may have strong swings down as we had today at the market open.

This is common misunderstanding when a trader asks to give him/her one chart setting that would work all the time. If you locked in one indicator, in one chart time frame, sooner or later you will get caught in the situation like today’s drop down and all your profits will be wiped out. You always have to look beyond time-frame you trade. This is what helped me yesterday to avoid playing long. Yes, I did not play this morning’s swing, so what – I did not lost and I had plenty of time at the morning to reanalyze the situation.

At the current moment the technical analysis is bearish on all time-frames. The Advance/decline on the S&P 500 and NYSE Composite indexes readings are extremely negative as well. The good news for Bears and bad news for Bulls is that the today’s decline, so far, have not generated any volume surges. Absence of increase in trading volume during decline suggests that current decline does not generated panic selling yet.

US Dollar index is up by breaking its high seen on November 16. As I numerously mentioned over the last month, stronger dollar supports correction down.

FOMC Minutes

The Nasdaq100 did manage to push the indexes higher. Yet, the major indexes (S&P 500 and DJI) were still in the negative area.


Because of the today's afternoon recovery, many technical indicators suggest possibility of further recovery. However, I would prefer to wait. The indexes are hitting the same top third times in a row (last three trading sessions) – we had two bounces down and we may have third one. In addition the longer-term charts are showing bearish sentiment.

Tomorrow, we will have minutes of FOMC meetings and we may expect higher volatility. The simple strategy could be recommended to wait the end of the session in order to see trend development after the announcements.

Money Flow and Nasdaq 100

The emini index futures did not hold the positive ground overnight and we had negative opening today which confirms one more time that the stock market is quite unstable. Then the Nasdaq 100, driven by Netflix 7% hike pushed the indexes up. Yet, it looks like the period of euphoria is over and the market is back into its normal stream.

The money flow is still positive on the 15- and 30-min charts. However, it already moves toward negative territory on 15-min chart and there are good odds that 30-min money flow will be trending toward bears as well. If this is the case we could be looking for negative trading today.

The US Dollar index is up and it may help the bears.

Short Trading Week

The past week could be characterized by strong decline during the first half of trading session on November 15, 2010 and by strong advance during the first 30 minutes after the the market opened on November 18, 2010. The rest of the time we had side-way trading. By the end of the trading on Friday, the indexes (Nasdaq 100, S&P 500 and DJI) were just a little bit below their Monday's opening levels.

As I already mentioned on Thursday (see "Advance/Decline" post on November 18, 2010), despite the strong advance on that day the longer-term charts (based on the daily bars) continue to indicate bearish sentiment. On the other hand intraday timeframes (with exception of hourly charts)  have some bullish signals. As an example, Money Flow on the 15- and 30-min charts points to the possibility of positive opening tomorrow. The index futures and emini index futures are already traded more than half percent up. If they stay on the same level overnight we may face strong swing up at the market open.

The coming week is not very reach on economic reports. The only thing that may push stock market into volatile trading is Minutes of FOMC meeting on Tuesday, November 23, 2010 around 2pm. In addition There is no trading on November 26 and there is a short trading session on November 27.

There is a lot of attention has been around US dollar over the last month. The S&P 500 index was highly correlated with US Dollar Index. Most likely we will continue to see this dependence. Yes, the Indexes show strongly overbought levels on the longer-term charts and many technical indicators, including money flow, suggest the good odds of stronger that we had correction. If the US Dollar continue to go up as it went up two week ago then most likely the indexes will decline deeper. Yet, if the FED manage to push US dollar lower, we may see indexes back to their high levels seen in the beginning of November.

Back to Advances and Declines

Today, during trading hours (see "High Advance/Decline Readings Post"), I have mentioned about extremely high advance decline readings on the S&P 500 and NYSE indexes. The indexes did not moved any more higher after that, yet they still had quite strong gain. The interesting thing is that even indexes had reported strong gain by the end of the day, the advance/decline readings were not any more strongly bullish at the market close. The advances topped declines on NYSE by a margin of 3 to 1 only. If during the trading session volume of advancing stocks in the S&P 500 sector was 40 times bigger than the volume of the declined stocks, then by the end of the day the ratio is 8 to 1 only.

Overall, we had today strong bullish trading only during the first hour after the opening Bell. The rest of the today's trading session the indexes were moving mostly side-way and even modestly declined. Because of this side-way action, many technical indicators on 5-min and 15-min charts suggest weak opening tomorrow. Some technical indicators on 30-min and hourly charts followed the morning up-move and turned bullish. Yet, the longer-term charts remain to be bearish.

Volume and US Dollar

Just addition to the previous post.

Another two not very bullish points: the current rally is supported by strong volume surges and actually US dollar is going up. Together with extremely high Advance/decline readings and increase in volatility this does not look very well.

I will repeat myself one more time. I would not play up on this rally.

High Advace/Decline Readings

As emini index futures suggested yesterday, the indexes are up. The US Dollar is down which could be the cause.

The indexes are up too strong. The current up-move is not very healthy by two reasons: it will bring the volatility up and advances and declines are hitting extremely high levels (known as overbought levels in technical analysis).

From
http://www.marketvolume.com/quotes/advance_decline_sentiment.asp
you may see:

For the S&P 500 advances beats declines by margin of 480 to 13. On the Nasdaq 100 advances beat declines by margin of 95 to 5.
Advance/Decline issues ratio on the S&P 500 hit 19 and advance/decline volume ration hit 40. See advance/decline sentiment at
http://www.marketvolume.com/quotes/advance_decline_sentiment.asp?s=SPX

I would not trade up - we may go down in the same way we are going up at such conditions.

Advances and Declines

Past week's decline has been supported by high bearish volume in the Nasdaq 100 sector. As a result today's session was under the Nasdaq 100 attempt to push the market higher while other indexes remained flat. US Dollar index was down today and it was another factor that hold the market form further decline.

We had strong decline yesterday during which advance/decline volume and advance/decline issues on the S&P 500 and NYSE composite indexes has hit very low readings. As a rule such readings in technical analysis are considered with oversold condition and panic selling and are usual noted at the bottom of a correction. However, current decline did not generated any noticeable bearish volume surges on the S&P 500, NYSE Composite and Russell 2000 indexes. Yes, we saw high volume on the Nasdaq 100, however, the Nasdaq 100 index is not volume leading stock market index. Because of these low advance/decline readings we may see some bounce up, yet, I'm skeptical that it could be end of correction.

From the money flow prospective, we may see positive money flow on 1-min time-frame, however, 5-min, 15-min, 30-min and hourly time-frames have negative or very close to negative money flow on the S&P 500, DJI and Nasdaq 100 indexes. From this point we may expect negative trading tomorrow at the market open. However, emini index futures are already traded now about half of percent up which, on other hand, suggests positive trading tomorrow at the open.

I would continue monitoring US Dollar index, as it looks like S&P 500 index continues to move in opposite to this index direction.

US Dollar up - Stocks Market Down?

As I mentioned yesterday "positive signals on the intraday charts should not be considered as strong signals" - we had today some positive trading, however, by the end of the day the indexes moved back down by ending the today's session flat.

Right now, all intraday time-frames (1-min, 5-min, 15-min, 30-min and hourly) an all main indexes (Nasdaq 100, S&P 500, DJI and Russell 2000) indicate negative Money Flow. This may suggest bearish trading tomorrow.

The US Dollar index has move today up and break its highs seen on October 19 an 27. Now, with some degree of confidence many trader may consider that recovery on the US Dollar is confirmed (which started on November 4, 2010). As I previously mentioned, this may push some traders to leave the stock market and move into currency and it could be additional force that may stimulate bearish trading.

The only thing that could be considered slightly positive is that Advances and declines are trending toward positive sentiment on hourly chart, yet declines are still dominant.

Beginning of Bearish Market? or just short-term correction?

We had first week of clear decline since beginning of September. It was not a strong decline and this decline did not generated any panic (we did not see any strong volume surges to the price decline). However, this decline has pushed many technical indicators closer to the bearish sentiment on the longer-term charts (1 bar = 1 day and higher time-frames).

Smaller time-frame charts, on other hand, have some bullish signals. Such, on 15-min and 30-min charts I may see money flow trending toward positive area. Yet, these time-frame are short-term and they cannot generate signals beyond tomorrow opening. From these charts I may say that there is some odds that we may see positive trading tomorrow. Big bearish volume surges on the Nasdaq 100 on November 11-12, 2010 may point to possibility of bounce up as well. Again, the Nasdaq 100 index was the only index that has strong bearish volume during the last two trading session. Therefore I would not rely strongly on the Nasdaq 100, right now.

As I already mentioned, 1-day and longer-term charts are moving toward negative sentiment. Hourly charts are bearish. This is another reason, why positive signals on the intraday charts should not be considered as strong signals.

Tomorrow, I'll be watching 15-min, 30-min and hourly charts. If the indexes follow the signals on the 15-min and 30-min charts and we see up-move then I would be watching hot it may affect money flow on hourly charts. I think US Dollar index it worth paying attention as well. If it goes up and breaks October 19 and 27 highs then it could generate another wave of selling on the stock market.

Keep in mind that over past week we see some increase in volatility. If we see further increase in volatility it may mean that the current movement down could grown into a strong correction.

Slow Decline

Slowly, but steady the indexes are declining. If you take look at DJI daily chart you may say that the DJI index has been in slow decline for five trading session in a row. Yet, this decline is so slow that only now DJI has wiped out all one-day gain it has on November 4, 2010. The S&P 500 is still above its end of October levels. Maybe this is why the today's decline does no generate any increase in volume on this index

The Nasdaq 100 is still traded on higher than usual volume. However, as on all indexes, Nasdaq 100 trading volume is steady - we do not see any volume surges (sudden increase in volume) which would suggest that so far this decline does not create any panic (no stop-losses are hit).

So far money flow on all time-frames is negative. I'm watching 5-min and 15-min charts. We may see some bounce up or side-way trading during today's session, yet by the end of the day I think the indexes will be down.

Fast Analysis

Just short analysis:

Money flow on 1-min and 5-min charts is negative.
On 15-min chart money flow is positive.
On 30-min chart is neutral, yet close to negative.
Hourly charts have negative money flow.

Strong volume was seen today on the Nasdaq 100 and DJI. While on daily charts this volume looks bearish (these indexes are down for the day), on intraday time-frames this high volume is clearly bullish. On the Russell 2000 and S&P 500 volume was at its regular level - no greedy buying and no panic selling.

Advances and declines on most of the indexes continue to be in the negative area.

US Dollar Index hit the tops seen on October 19, and October 27 2010.

There are no nay big economic reports tomorrow - only consumer sentiment from the Michigan University.

Overall, despite the today's recovery from initial swing down, I'm still bearish. Yet, I could be wrong, therefore I would recommend checking charts by yourself.

Nasdaq 100 versus S&P 500

It was very negative opening. We have not see such swing down at the market open for a while. However, the indexes are moving up. However, they are moving up on high volume. High trading volume could be seen on the Nasdaq 100 and DJI indexes. However, the S&P 500 index's volume is just a little bit higher. Russell 2000 volume is normal. High volume tells that the morning's sing down hit sensitive level and many traders from the Nasdaq 100 and DJI sectors started to sell. On the other hand big number of traders started to buy and pushed these indexes up.

I would not think that this recovery will be long, mainly, because I do not see high volume on the S&P 500 and Russell 2000 indexes and I do not think that the bullish traders on the Nasdaq 100 will be able to hold the entire market.

Money Flow and Volatility

We had up-swing at the market open and then decline as I expected yesterday. However, around 11am the indexes started advance as US Dollar started to decline. If you compare today's US Dollar Index and S&P 500 index you will see that their trends are exactly opposite. As I already mentioned several times, it looks like current stock market investors are looking at US Dollar trend.

Regarding money flow: the money flow continue to stay negative on the hourly charts. Today's advance did not greatly affected it. On 30- and 15-min charts it have became positive (I have mentioned yesterday that I would watch these charts). Yet, on 5-min chart money flow is becoming negative again.

Overall, from the money flow prospective I would say that the main sentiment(hourly chart) continue to be weak, in addition we may have decline tomorrow at the market open (5-min chart). If this happen and we see change in the flow on 15- and 30-min chart he we may have some strong decline.

Other things to consider is :

- The ETFs already dropped after the market close and index emini futures are already traded down. So most likely we will have weak opening tomorrow.

- The US Dollar index is close to its high seen on October 19 and on October 27, 2010.If this level is broken many traders may consider that the US dollar is not any more in down-trend. It could be additional fuel for stronger decline on the stock market.

- There are not a lot of economic reports, so most likely the trend will be guided mostly by technical analysis over the next couple of day (should not be surprises).

- Over the last couple of trading sessions we have an increase in volatility. I'll be reducing bar period setting on most of my intraday technical indicators to avoid a situation "when it's too late"

Money Flow

Before today's market close, I have mentioned that if the indexes continue their decline by the end of the session the odds should be good for bearish market tomorrow. The indexes declined, however, during the last 10 minutes of trading we had a bounce up.

Because of this up move, the indicators on 1-min and 5-min charts started to move toward bullish sentiment, which may suggest that we may see some bounce up tomorrow at the market open. However, money flow on the 15-min, 30-min and hourly chart remains to be bearish which suggests overall bearish outlook for tomorrow's session. Still, if we have positive move tomorrow at the market open, I would monitor 15-min and 30-min chart to see how it affects money flow on these time-frames.

US dollar pushes indexes down

Dollar goes up, indexes go down. This is going to be third positive session in a row on US Dollar. If the dollar keeps positive ground, there is a possibility the indexes could be come more bearish.

My technical analysis continue to be bearish. Money flow on 30-min and hourly charts became negative. we may see start of increase in bearish volume. Looks like today's decline starts to make some worries.

If the indexes continue their decline the odds could be good to have negative session tomorrow as well.

Flat Trading

The indexes continue to be flat. The US Dollar at the opening was down, respectfully indexes were up. Yet, the US Dollar almost recovered, while Nasdaq 100 is still trying to pus up. DJI and S&P indexes quite flat.

The advances and declines continue to move toward negative area. Because of the flat trading, money flow and volume indicators are flat as well. By the same reason, price based indicators are turning into bearish slowly (price trend lost its momentum).

There are no big economic reports today and we may see another quiet day. I'll be on the 30-minute and hourly charts. In addition I'll be watching US Dollar. Last two trading sessions it was up and there is chance it will be up or at least flat today as well.

Advances and Declines

We have second session in a row of side-way trading. If up-move on November 4, 2010 is a beginning of a new up-trend, then it should not be like that. The indexes are loosing their bullish momentum. So, there is other possibility that that up-move was just a short-lived swing.

The volume is down and it looks like the bulls are not dominant. Because of the side-way trading over the lat 2 trading session the money flow on intraday charts is undefined. However, advance/decline indicators are moving toward negative area and advance/decline volume on the DJI and S&P 500 is already in the negative area. because of that I would assume that there is a possibility that bears may take over and we may see some move down today by the end of the day or tomorrow at the market open. Yet, it could be too early to make any prediction for tomorrow's trading - we still may see some new indications.

S&P 500 Index Chart

We had quite strong break through from the side-way trading on Thursday, November 4, 2010. The last two days of the week were accompanied by very strong bullish volume which very clearly could be seen on the Dow Jones Industrials (^DJI) and the S&P 500 (^SPX) indexes.

We had strong bullish volume surges on many indexes in period from October 12 until October 21, 2010. We have not see any reversal followed that strong bullish trading (I would not call a 2% retracement as a correction or reversal). Now, again, we have strong bullish trading...

At the current moment many technical indicators suggest good odds of further advance. This is mainly because of the advance during the last two trading sessions. However, I think that we should remember that the same technical indicators suggested a possibility of a correction just a week ago. I would not relay heavily on technical analysis right now. It looks like other factors (possibly fear of dollar inflation) move big player into the stock market, while other big players are dumping stocks.

We had strong move up and by many indicators (volume and advance/decline based) the stock market could be considered strongly overbought. The high trading volume surges over the last three weeks confirms that - there are many big traders who consider market overbought and who is dumping in big volumes to greedy  buyers. It is difficult to say who will win in this battle. Keep in mind that over the last two years there are big companies who reported big earning and who did not invested earned many in anything but was sitting on cash. Now, when the Government is officially talking about how much good an inflation could bring to the economy and FED announcement about printing and pumping another $900 billions, those companies could be buying. Of course there could be other explanation of the last two days up-move, however as technical analysts we should not worry for the cause, but watch where the money go.

Now, when the market is far up from the Augusts' lows, it would be logical to have strong correction. The question is when. Right now I would watch S&P 500 SBV Oscillator (bar period = 20) on daily chart (1 bar = 1 day). Starting from the beginning of September SBV Oscillator show positive money flow. The money flow is still positive on that chart. I would wait when I see decline in the flow. Yes, daily charts are longer-term charts and they have some lag in signals. However, if we face a correction I would expect it to be quite strong.

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

High Volume

It does not looks like the US indexes are rushing down, despite the fact the US Dollar Index is up and already recovered completely from the yesterday's losses.

The indexes are still traded on the high volume. I would say that so far the situation is uncertain and we still have odds of the market moving in either direction. If yesterday's up-move is a beginning of a new up-trend then it would be logical to have positive movement today as well. If yesterday's up-move just short-term bounce up (result of dollar-inflation panic) then it would be logical to today slide down.

High volume at the current high-price level could mean that we have many traders rushing into the market (could be the same result of dollar-inflation panic), yet we have equally big number of traders who is selling short and who is dumping stocks (could be result of analysis that shows overbought markets). We do not know which group of traders will win and what sentiment will be dominant. We may just wait when volume activity starts to decline and watch where the market goes.

P.S. At the current moment I'm on 5-min and 15-min S&P-500 chart. So far money flow on 5-min chart is negative and on 15-min chart money flow moves toward negative area

US Dollar

I was very interesting day today. The indexes have broken the side-way and uncertain trading trading by strong opening. The indexes not just broke - they "hold the ground". Even the Nasdaq 100 did not moved higher after the morning's swing, the DJI, S&P 500, Russell 2000 and other indexes were in positive move the today's entire session.

Today's advance has been supported by strong bullish volume on all indexes. As a rule strong bullish volume could be noted at the begging of a new up-trend or at the end of the up-trend. I would not try to guess right now what is possibly today's volume could mean. However, if we do not an equally strong decline tomorrow, I would say, that the odds of bullish market would be higher.

On the other hand it looks like the current up-move was strongly based on the decline in dollar. The other interesting thing is that today we had record high volume on the US Dollar index during its decline. We had similar volume behavior in US Dollar index in period from October 2009 until December 2009. If the US Dollar continues to slide down for another month we may see positive trading on the stock market during that period of time.

Over the past month we had strong advertising pressure that the US Dollar should be artificially weakened and that would greatly help the US economy. It seems like yesterday's FED announcement to print another trillion and pump it in the economy has pushed many investors (who was sitting on the money) into panic. Even the money are not printed yet and are not injected into the system the fear of inflation could push those investors who has a lot of cash to buy stocks. Respectfully, this may may the stock market on positive sentiment.

P.S. At least the Government will sell GM stock on rising trend an at the top.

Indexes Up

Index futures already before the Bell pushed the indexes 1% up. It is quite strong statement, especially taking into account that indexes where traded at their tops. Let's see if the sentiment in the commodities market is piked up by stock market traders.

Will keep my eyes on 5-min S&P 500 and Russell charts. At the same time I would be tracking IS Dollar index. It looks like it could be the major player that pushes the market right now.

Russell 2000

Have been quite busy over the last couple of days. As I mentioned on Sunday we had positive opening on Monday and then we had quiet trading until today's FED's announcement. The news about another stimulus with size of 900 Billions have pushed the US dollar down and the indexes (stock market) reacted by the move up respectfully.

As a rule, the FOMC meetings are supported by increase in volatility and volume. Today's trading session was not an exception from this rule. As a result we have strong daily bullish volume. At the current moment the indexes are at their top levels - some indexes are a few points below and some are a few points above.

From the money flow prospective the the Nasdaq 100 indexes show positive flow on 1-,5-,15- and 30-minute charts. On the hourly chart the Nasdaq 100 money flow could be considered negative. Similar analysis could be seen on the S&P 500 and DJI indexes. The Russell 200 index has been traded on higher than other indexes average volume over the last couple of trading sessions and have slightly different money flow. With Russell 2000 index we may see some weakness in money flow on 5-minutes and 30-minutes charts.

Overall, there are some signals that we may see positive trading tomorrow. Yet, again, taking in the account overbought signals on the longer-term charts I would not rely on these signals. I would rather stayed in cash until clearer longer-term trend.

For tomorrow's intraday outlook, I would focus on the Russell 2000 5-min charts. Since it has been trading on the higher volume lately, it has clearer signals - the Russell 2000 5-min chart already shows decline in money flow towards bears.

Side-Way Market

We had another week of side-way trading. The DJI and S&P 500 indexes have been in the side-way mode since October 13, 2010. The coming week could be interesting. We will have several interesting events - FOMC rates meting and end of election. Respectfully we may see an increase in volatility and maybe the end of side-way action.

So far, many technical indicators suggest strongly overbought levels and it would be logical to see some correctional move. Yet on the other hand, at the end of trading session on Friday October 29, 2010 we had strong bearish volume surge on many indexes (clearly seen on hourly index charts). We had some similar volume surge on October 19, 2010 followed by 2% up-move. We already may see index futures traded 0.5% above the Friday's close level and most likely we may see positive opening tomorrow at the morning. Still, if this happens, I would not be very optimistic. mainly because of the strongly overbought levels.

Nasdaq 100 again

As I mentioned yesterday, the indexes were down at the opening. However the Nasdaq 100 pushed them up (the same as yesterday and the day before yesterday), back to the neutral territory again. Money flow on the index charts, so far, remains to be the same as yesterday at close (see mine yesterday's "Nasdaq 100" post). The only difference is that the 1-min charts have neutral money flow and on 5-min chart money flow is moving down and could become negative. I would continue to monitor 5-min chart to see whether it become bearish - so far it is bullish.

Nasdaq 100

We had another day of side-way trading when the Nasdaq 100 index was pushing up while the rest of the market was trying to dive down. The difference between yesterday's and today's trading is that today we had stronger bullish volume on the Nasdaq 100. It is already seventh positive trading session in a row on the Nasdaq 100. The other main indexes (DJI, S&P 500 and Russell 2000) are almost three weeks in side-way action. I would risk to say that today's volume on the Nasdaq 100 could trigger a decline.

So far the Money Flow
 - on 1-min chart is negative (bearish) on the Nasdaq 100, DJI and S&P 500
 - on 5-min chart is positive (bullish) on the Nasdaq 100 and S&P 500 and neutral on DJI
 - on 15-min chart is positive on the Nasdaq 100 and S&P 500 and neutral on DJI
 - on 30-min chart is negative on the Nasdaq 100, DJI and S&P 500
 - on 1-hour chart is negative (bearish) on the S&P 500 and DJI and neutral on the Nasdaq 100

From the money flow (volume) prospective I would say that there is a possibility to sea decline tomorrow at the market open (because of negative money flow on 1-min chart). If this happens then I would monitor money flow on 5-min and 15-min charts. If the money flow on these charts become negative (bearish) then I would expect stronger decline (on 30-min and 1-hour charts money flow is already negative).

Inraday Charts

Yahoo Finance main news: "Stocks rise after earnings, drop in jobless claims" - it looks like the market ignores today's positive news. If this continues it will be another confirmation of correction down.

Right now, I'm on 1-min and 5-min charts. The indexes continue to be volatile and these charts reflects their rends. 15-min and 30-min charts are a little bit slow in reaction on intraday changes. They still have positive money flow,yet, I would continue to monitor them to see changes in the flow. If they become negative, that could mean that we may see stronger move down today

Nasdaq 100

The indexes followed the dollar and opened lower today, however the Nasdaq 100 index pushes up. Interesting fact is that the number of declining stocks in the Nasdaq 100 index is bigger than the number of the advancing stocks, however, the volume associated with these advancing stocks is higher than the volume associated with declining stocks. It looks like these stocks are holding the Nasdaq 100 index from a drop. The question is for how long...

Weak Market

Today was one of the day when the S&P 500 did not reflect the opposite trend of US Dollar - US Dollar Index went up, yet, the S&P 500 index remained flat. There could be two explanation of such behavior: a) the patter is broken and S&P 500 and US Dollar trend will not be correlated, or b) the S&P 500 index will catch it later by stronger movement down.

In my Sunday's "US Dollar and S&P 500" I mentioned that if October 21st high is broken than it could mean that bulls are taking over. This high was broken on the S&P 500, DJI and Nasdaq 100. However, the break out was very weak and the indexes retraced back down. I would not like to be in a long on such weak trend. There are too many negative signals on the leading indicators for me to be Bullish. It could be premature to play short, yet I would not bet on any bullish signals right now. I would rather stay in cash.

Worth checking:
 - DJU (Dow Jones Utilities) index is already in correction
 - DJT Bullish volume surge on October 23, 2010 extremely strong;
 - Starting from October 14, 2010, the US Dollar shows the possibility of recovery;
 - Yes, the S&P 500, Nasdaq and DJI are trading close to their highs, however, the trading is very weak;
 - Despite the fact that S&P 500, Nasdaq 100 and DJI are close to the top, advance decline volume and issues ratios for these indexes are trending down.
 - Huge volume surges in period from October 13 until October 20, 2010 have to be played out somehow on the supply/demand balance...

P.S. Advance decline and volume indicators for US indexes could be found onwww.MarketVolume.com

US Dollar Again

The S&P 500 continue to follow US dollar. The US dollar was down the indexes opened down. Now, US Dollar index rising and indexes are in decline. The indexes' volume continue to be low (in comparison to what we saw last week).

So far the indicators continue to be "lazy", mainly because of low volatility. To monitor market I simply increased indicators' bar period settings on 1-min charts.

So far, I would say the odds are better to see indexes further down.

Indexes Up

Index E-mini futures and index tracking ETFs are up. Most likely the indexes will open up as well. Friday's drop in volatility known in technical analysis like "Market Squeeze" which is usually noted before strong swings like we going to have today at the market opening.

We already may see on ETFs that Nasdaq 100 (QQQQ and NQ) will be a little bit behind. I would not bet on this swing and would not try to play bullish signals that could be followed by that swing. Because of the side-way trading, many technical indicators, especially on lower time-frame charts are undefined and not clear - I would wait or at least half of hour after opening.

US Dollar ans S&P 500

As I mentioned a week ago in my "Strong Volume" post on October 16, 2010 "if market is predisposed to reverse its trend it does not mean it will happen tomorrow. It could happen tomorrow, yet, we still may see a week or even two weeks of side-way trading." - since October 13, 2010 the S&P 500, DJI, Russell 2000 and other indexes could be considered in the side-way action. The Nasdaq 100 index could be considered moving side-way since October 18, 2010.

As I commented over the past week, this side-way trading was supported by very strong increase in volume and was very volatile. It is not a common thing to see such huge trading volume at the top. As a rule, at the resistance levels volume surges are smaller and more prolonged in time, while at support levels volume surges are very strong. I have scrolled index charts over the past 10 years and I was not able to find any occurrence of such strong increase in daily volume on the S&P 500 and DJI history. Some similar, but smaller increase in volume was noted in period from April 14 until April 19, 2010 when the indexes were traded at the same high levels. My neighbor would say "There's some serious sh... is going on that market"

The critical point on mine view is that on last trading day of the week (Friday, October 22, 2010) volume was down to its normal level. The volatility was down as well. I would even say that volatility was very low, "like a silence before storm".  I have already mentioned on Friday (see "Low Trading Volume" post) that such decrease in volume and volatility could imply that the period of movements in investments positions of "Big Guys" could be over; which could mean that the next week could show who won (Bulls or Bears) and whether the market (S&P 500, DJI and Nasdaq 100 indexes) will be trending up or down. Conservative traders who does want to spend a lot of time on technical analysis could simply wait when either October 19th low or October 21st high is broken and then make a trading decision.

On the other hand I will not be surprised to see the market at the same level next week. The Election Day is coming and I do not think that some political leaders would like to see any type of crash or strong move down right now. In 2008 the stock market crashed too deep down. I was always under impression that the market was over-pushed down artificially by some "Big Players". This is why we had in 2009 very strong recovery in short period of time. In 2008 the stock market played on the hand of some party and it looks like now it is helping the same guys. But this is another story, I'm not a politician and I do not play conspiracy games - it may drag away from "cold-blooded' and unemotional analysis. Just in some cases, some weird market swings could be very difficult to explain from the prospective of technical analysis.

Coming back to the technical indicators I would say that

 - The daily charts remain to be bullish, yet I see strong overbought signals, especially on the volume based technical indicators. The volatility on daily charts is going up, which is usually  happened before Bear markets.

 - The hourly charts have mixed signals - some indicators and some indexes are bullish and other indicators and indexes are bearish. The common thing between all indexes on hourly charts is that all of them have overbought signals.

- 30- and 15-min charts could be considered slightly positive: you may see some positive Money Flow, however at the same time you may see negative divergence in the Money Flow.

 - Smaller time-frame, after Friday's quiet trading, is very neutral, yet, I would say that some indicators have tendency to become negative.

Note: by referring to volume and advance/decline based technical indicators I refer to MarketVolume charts. See NYSE, Nasdaq 100, S&P 500, DJI, Russell 2000...

It is worth mentioning that US Dollar index has generated number of oversold signals and many technical indicators on this index indicate bullish sentiment. If the US Dollar reverses and moves up it could be as trigger for the stock market to go down. At the current moment I focus some on mine attention on dollar simply because over the last three month the S&P 500 index trend is chronically opposite to the US Dollar index trend. It's like some invisible hand is trying to direct the stock market by using US Dollar.

Chart #1: The US Dollar and S&P 500 index daily chart with elements of technical analysis applied to the US Dollar index

Low Trading Volume

It looks like we are going to have today quiet trading on low volume. The Nasdaq 100 index is trying to push modestly higher , while the S&P 500 and DJI are pushing market in opposite direction. Respectfully, money flow is slightly different on these indexes. I would not expectant significant movement by the end of this trading session.

The fact that the volume down could mean that main movements in investments positions of "Big Guys" is over.

S&P 500

I'll try to be short today. A few things:

- Hourly, 30-min and 15-min S&P 500, DJI and NASDAQ 100 charts have negative money flow - this is a bearish sign;

- 5-min chart has positive money flow which suggests that we may see some positive trading tomorrow. If this is the case, I would monitor 15- and 30-min charts for changes in the money flow on them;

- Volatility is growing and this is bearish sign;

- Trading volume is still high, yet we already may see decreasing tendency;

- Over the lat couple of months the S&P 500 index's trend is exactly opposite to the US Dollar index's trend and today's session was not an exception. There is a good increase in volume on US dollar index and I would say that this may indicate a possibility of Dollar going up. If this happens we may see the S&P 500 index decline.

It is already seven trading session as the S&P 500 is in side-way volatile action. Upper and lower lines of this side-way corridor are already defined. Conservative traders may simply wait when one of these lines is broken as a confirmation of either trend.

optionsXpress

At this moment optionsXpress displays SPY up by 13.43 points or +12.78%. According to my data the SPY was traded yesterday at 16:00 at $117.86. Now it is trading at $118.41 which is only 0.55 points or 0.47% advance - and this is correct and it could be verified on Yahoo finance. It looks like optionsXpress have bad data after all... The question is rising whether you may trust data and charts provided by a broker...

6 Sessions of Wild Trading

As I mentioned today, the advance on the indexes (S&P 500, DJI and Nasdaq 100) halted and slightly reversed as indexes came close to their highs seen on October 18, 2010.

A few points to consider:

- it is already sixth trading session in a row as S&P 500 and DJI indexes have wild swings on high volume at the current resistance level;

- today's advance was accompanied by high volume and it could be assumed that negative money flow accumulated yesterday has been compensated by today's positive money flow accumulation;

- volatility is increasing - this would favor bearish trading;

- yesterday's extremely low advance/decline readings on NYSE and S&P 500 are still may affect he trend and push indexes higher;

- QQQQ, SPY and other ETFs advanced slightly after the market closed.

So far technical indicators on 5-min and 15-min charts are slightly bearish. 30-min and hourly chart have mixed signals and I would consider them neutral. I we see a decline tomorrow after the market opens (as suggested by smaller time-frame chart) I would keep an eye on 30-min charts for bearish signals.

Inraday Charts

The indexes (Nasdaq 100, S&P 500 and DJI) have come to their highs seen on October 18, 2010. We already started to see some resistance to the up-move. Money flow on 1-min chart is already negative and on the 5-min chart money flow is moving towards negative area. The morning trading went on quite strong bullish volume (see hourly volume charts for S&P 500, Nasdaq 100 and DJI) - this is another force that may stop the today's advance. The money flow on the 15- and 30-min chart remain to be positive. I would continue to monitor these charts to see if any changes in the indexes' sentiment occur.

Money Flow

15-min charts are turning bullish which increases the odds of indexes moving to the October 18th highs. So far, money low on the 5-min, 15-min and 30-min charts could be considered positive. Money flow on hourly chart is still could be considered between neutral and ngative.

The first hour of trading went on high volume and most likely second hour will be on strong volume as well. High volume and high volatility during an up-move suggest weak up-move and I do not expect to see strong up-move today. Yet, anything could happen.

US dollar index is down and it helps bulls.

NYSE Advance/Decline Readings

The indexes are going to open modestly higher, which should be logical after yesterday's strong selling. There are some bullish signals in the 1-min and 5-min index charts, yet, the 15-min, 30-min and hourly charts remain bearish. I would continue monitor 5-min chart in parallel to the 15-min charts to see if during the morning up-move indicators on 15-min chart turn into bullish - it would indicate a possibility of stronger bounce up.

A few interesting points that I would consider worth attention.

- Yesterday we had strongly oversold (extremely low) advance/decline issues and advance/decline volume readings on the NYSE Composite and S&P 500 indexes. As a rule after that we may see bounce up.

- Volatility on the longer-term frames is rising which is bearish sign.

- We had 2-day up-move in US Dollar index. Up-move in dollar favors bears.

Index Trading on High Volume

There are strong increase in volume on all indexes over the last 30 minutes. on intraday 1-min (1 bar = 1 min) chart the strong bearish volume (during the price decline) could be seen in period from 14:01 until 14:05 (3 minutes only). After that the price moved up and high volume associated with this move is basically bullish volume. It looks like during the drop the indexes and stock have hit levels that was set by many traders as to buy (whether to close long position, or open a long position). If the price continue to decline it would mean that there are no buyer to support this short-loved "buying explosion" and the power of bears is quite strong.

Finacial Sector

The same as yesterday, the financial sector (see S&P 500 Financial index) is trying to push the market up while the rest of the US indexes are negative. On October 14-15 the S&P 500 Financial index has generated strong bearish volume surges (strong panic selling) and as a result we have a bounce up in this sector.

Over the last couple of trading sessions we have big divergence between market sectors - some of the market sectors are strongly bearish while other are strongly bullish. Then those sectors that were bullish became strongly bearish and previously bearish sectors became strongly bullish. In the result we have volatile trading.

P.S. US Dollar is up (see US Dollar index) and this is not in the favor of Bulls.

QQQQ

As I mentioned in the morning, the Nasdaq 100 has been trying to push down while Financila sector was pushing market up (see S&P 500 Financial index which advanced more than 2% today).

The average trading volume was lower today on all indexes which suggest that period of greedy buying is coming to the end (number of buyer becomes exhausted) and we could be close to the reversal move down. The interesting thing is that QQQQ has already declined about 2% after the market close, so, there is a possibility we may see sharp opening down tomorrow. If this is the case it could be a beginning of a strong correction down.

Over the last one and a half month (during up-move) we have not seen any strong correction (2% short-lived moves down cannot be considered as strong correction). The indexes went too high too fast over that period of time and this is not good.

Tomorrow, I still would watch the US Dollar index in parallel to my volume charts. At the same time would keep close eye on the volatility on the daily charts. If the volatility goes up, it could be a confirmation of correction and it may suggest to switch to lower time-frames.

Volume Down

Going back to the 15- and 30-minutes charts. I would expect to see decrease in volume today.

As a response to the Thursday-Friday strong bearish trading on the S&P 500 financial and strong bullish trading on the Nasdaq 100 we have today Nasdaq 100 attempts to push lower while Financial sector pushes stock market up. Possibly, we may see such sentiment for a whole day.

It looks like US Dollar Index is going up since Friday. I would keep my eye on it as well. If the dollar will continue to go up, it could be one of the reasons for investors to pull money out of the stock market into currency market.

Strong Volume on all Indexes

As I mentioned on Friday before the market opened and in a few hours after the opening Bell, the last day of October's options was very volatile at the beginning, yet the volatility dropped down by the end of the session. The interesting part of Friday's trading was strong advance in the Nasdaq 100 index (2.1% up) at the moment when the rest of the indexes was trying to push down: DJI dropped 0.29%, Russell 2000 declined 0.23% and S&P 500 modestly advanced by 0.20%. At the same time, the indexes from the financial sector strongly declined on Friday: S&P 500 financial dropped by 1.71%, Nasdaq Banking by 1%. Housing and precious metal indexes were strongly negative on Friday as well: Amex Gold, PHLX Gold/Silver and PHLX Housing decline more than 1 %.

Friday's trading session was very interesting from the prospective of volume technical analysis as well. It was the third trading session in a row of high trading activity on all indexes and on some indexes the volume surges were very strong. However, since we hade mixed trends on Friday, we have mixed volume readings on different indexes. On the Nasdaq 100 index we had strong bullish volume surges on the S&P Financial and DJI indexes we had strongly bearish volume surges (especially if we look at them from the lower timeframes). From the longer-term prospective I would consider all volume traded over the last three trading session as Bullish volume, simply , because it was at the top of the recent up-trend. The only under a question for me could be the S&P 500 Financial index which has been in strong decline for the last two trading session.

Overall, I would say that the volume we saw over that last three trading session must affect longer-term trend. The question is when. We have all the factors that precede the reversal down - we had strong up move without even short-term corrections; we had huge bullish volume accumulation during this up move which indicate strongly overbought condition; we had strong increase in volume which could be considered as greedy buying by retail traders, etc. Still, as consistently mentioned before, if market is predisposed to reverse its trend it does not mean it will happen tomorrow. It could happen tomorrow, yet, we still may see a week or even two weeks of side-way trading. To be sure in reversal I would monitor money flow direction on the daily charts (1 bar = 1 day).

The third interesting point is that on Friday we had up move on the US Dollar index which was supported by extremely strong volume. If we take a look at the US Dollar reversal in December 2009 we may see that when US Dollar started to move up this up-move was accompanied by huge volume surges. If we see that US Dollar will continue to recover it could be another point that would support correction on the US stock market - if you compare US Dollar index to S&P 500 index you will see that over the last half of year, in most cases, the US dollar trend is opposite to the S&P 500 trend.

P.S. I'm sorry I did not post any chart snapshoot today - will try to do it tomorrow if I have time.

High Volatility

Volatility is quite strong... Even 15-min chart is too slow to react on the price changes. So, basically I'm on 1- and 5-min bars. The volume continue to be very high. This is going to be the third day of high trading activity (high volume). I still would expect volatility go down by the end of the session with price in the range of the Wednesday's high and Thursday's low. Yet, I could be wrong and the only recommendation that I could give is to watch charts by themselves.

Options Expiration Day

Taking into account emini index futures and ETFs trading before the market opens, we may expect strong positive opening. This is the last day of October's options. I would be very cautious today as we may see wild swings, especially at the begging of the day.

I would go today with 15-min (1 bar = 15 minutes) chart today as it faster react on the price changes than 30-minutes chart.

High Volume - Big Guys Reshufeling Positions???

As I mentioned before the market opened, based on the Money Flow on the 15-min and 30-min charts we had negative trading today. Again, the same as I stated, since Money flow on the longer-time frame (on hourly charts stayed positive), the indexes recovered by the end of the session.

The strongest decline was noted today mostly in financial sectors (S&P 500 Financials, Nasdaq 100 Financials and Nasdaq 100 Banking).

We had yesterday very strong daily volume - some indexes beat their 2-3-4 month records on daily volume and that volume was during the price up-move (strong bullish volume activity). I've already mentioned that yesterday's volume could change supply/demand balance. However, today many indexes had even stronger volume and this volume was noted during the price decline (strong bearish volume activity). Such, daily volume on the S&P 500 Financial index was one of the highest daily volumes over past year. We already saw a reaction on that volume as a recovery by the end of the today's session. ETFs that track indexes continued to move higher even after the market closed - QQQQ (Nasdaq 100 tracking stock) has made about 1% up SPY and DIA (S&P 500 and DJI tracking stocks) have made about 0.2% up after the Bell. However, there is another interesting point. Trading volume on QQQQ during the first fifteen minutes after the Bell (in period from 16:00 until 16:15) was several times higher than the volume during any 15-minutes period during regular trading hours and this was Bullish volume surge.

Even if it could seems that market could to move higher tomorrow, I would not be very optimistic. Yes, maybe we may see positive opening, yet I would not bet after it. Taking into account indicators on the hourly chart I would expect to see indexes in the range between yesterday's high and today's low. Keep in mind that tomorrow is options expiration and it may put some additional volatility.

Money Flow

Yesterday I have mentioned about monitoring money flow on the 15- and 30-minutes charts (1 bar = 15 minutes and 1 bar = 30 minutes). Already around 3 pm yesterday you could see changes in the flow. On 5-min index charts money flow is already negative. It is still positive on the 30-min index charts, yet it moves towards negative area. Furthermore, I would expect continuation of the yesterday's decline we had at the market close.

Right now, I would not try to guess whether this decline could be strong. For this, I would recommend monitoring 60-min index charts (1 bar = 1 hour). So far, the money flow on that chart is positive which suggests that the trend on this frame is still positive and that even if we see a decline, the indexes still have prover to come back to their highs.

Another important on my opinion point is the strong bullish volume we had yesterday on all indexes. This volume surge may lead to the shift in the supply/demand and at least to halt the current advance.

P.S. You may check money flow for S&P 500, DJI, Nasdaq 100, Russell 200 and other indexes on the MarketVolume's charts (MV Charts)

Money Flow

The indexes did not reversed. They continued its up move and they continued it on high volume. The money flow continued to be positive. Now when the volume surges became stronger I would watch for the change in the money flow on the 15-min and 30-min charts (1 bar = 15 minutes and 1 bar = 30 minutes).

FOMC Minutes folled by Volatile Trading

It was quite strong volume increase after the minutes of the FOMC meeting. Quiet trading at the morning has became a little bit volatile after 14:00 EST - swing up, down and up again. As a rule strong volume during the price rise (as we saw today afternoon) may push indexes down. Already on the lower time frame charts (1 bar = 1 minute, 1 bar = 5 min and 1 bar = 10 min) I may see some weak signals that would suggest a possibility of decline. However, by referring the higher time-frames 15-min charts (1 bar = 15 min), 30-min charts and especially hourly charts (1 bar = 1 hour) I may see that the positive sentiment is still strong. Based on this, I may expect to see some decline tomorrow at the morning. However, at this point it is difficult to say, in case it goes down whether it may grown into something stronger which would go beyond the morning trading .

High Volume

Small Advance and very huge volume after FOMC minutes. I would be cautious about possibility of reversal swing down.

Volume and Advance/Decline Charts

As my yesterday's post followup - volume and advance decline index chart presented in that post could be found on the MarketVolume's website (http://www.marketvolume.com). At this moment MarketVolume is the only source of intraday advance/decline and volume charts for US indexes and exchanges.

Low Volatility, Low Volume

The stock market is quiet. The average trading volume is quite low. There are no economic news today. Te only economic event for tomorrow is "Minutes of FOMC Meeting".

This is options expiration week (October's options will expire on this Friday) and usually options week is accompanied by volatile trading. The odds are good that we may see similarly quiet trading by the end of the session.

However, keep in mind that moments of very low volatility are also known in technical analysis as "Market Squeezes" and usually are characterized as "Silence before storm" and are noted before strong moves.

S&P 500 Chart

Another mixed week. The S&P 500 and DJI indexes moved higher while the Nasdaq 100 moved in side-way trend in which this index has been since September 24, 2010 (right now only a few points higher). The S&P 500 an DJI indexes were mostly traded side-way (since September 24 as well) with exception of the strong rally on October 5, 2010. Currently, the Nasdaq 100 index moves at its high levels seen in April 2010. The S&P 500 and DJI indexes are still 2-3% below their April's highs.

Below I have posted daily chart (1 bar = 1 hour) of the S&P 500 index with plotted Nasdaq 100 index (orange line).

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

The technical analysis on the chart above is applied to the S&P 500 index. The DJI daily chart would give quite similar picture. The Nasdaq 100 daily chart would be slightly different , with a little bit more bearish sentiment.

By summarizing the indicators above I may say that the longer-term positive divergence on the SBV and advance/decline oscillator is a good sign from the longer-term prospective. However, there are several negative signals at the current moment:

 - the SBV is still at high positive levels and is moving sideway. Even bullish volume accumulation could be considered quite strong and would indicate oversold index's condition, the Money Flow is still positive on the S&P 500 and DJI (not on the Nasdaq 100). Until we have positive money flow there are always will be good odds of up-move

 - Advance/decline volume and issues ratios and McClellan Oscillator are moving sideway after being at high levels. This suggests that if in September we had traders buying advancing stocks then, right now, there are not as many traders focused on the positive stocks as before. The number of traders focused on the declining stocks is about the same as the number of traders that are trading rising stocks. This shift from trading positive stocks suggest that many traders switch into bearish mood and if this tendency continue we may see more traders in bearish mood.

- We have a signal on the MVO. This suggests an increase in bullish volume (bullish volume surge). As a rule such increase in volume during price advance may lead to the shift in supply demand balance (when power of buyers become existed) with further reversal down. However, if you scroll the history you will see that usually reversal occurs when MVO returns to zero.

- The biggest concern on my view is an increase in volatility. The volatility is up since its low readings in the middle of September 2010. This is not normal. I have not see a lot of periods in the history when indexes moved up on rising volatility. The volatility is not too big to be considered strongly bearish, however the fact that is up from its low readings suggests nervous and uncertain trading, which is usually seen during down-moves.

Overall, I would say the the indexes could be considered predisposed to move down and we already may see some bearish signals. Which is logical when the indexes are at their Aprils highs. After a month of positive trading we may expect quite strong reversal. However, until wee see some negative money flow it could be too risky to play on it. If correction down meant to bee strong then there is no need to play at the top. More conservative approach would be wait for conformational signals and ply confirmed trend.

Indexes

DJI and S&P 500 indexes just broke their September 17's high. Good sign to rally closer to the resistance seen in April 2010. The Nasdaq 100 is behind. As I previously mentioned, the Nasdaq 100 rally in September was much stronger in comparison to the September's up-move in S&P 500 and DJI sectors. Therefore when it comes to new highs the Nasdaq 100 stays behind of other indexes.

The market continue to be volatile. I will not be surprise to see another swing down, especially after such increase in volume during the last swing up.

Unsertain Sentiment on High Volatility

It was a quite volatile session today: opening at high, then swing down, then swing up, then decline, then recovery. At the end of the day the indexes are where they were yesterday. The indexes did not continued the up-rally we had on October 5th, yet at the same time the indexes do not rush into correction.

From one side it is difficult to believe that 2-3% correctional move down (mostly side-way trading) we saw at the end of September would release the market (indexes) from the overbought condition the indexes should be after September's bullish trading. From other side it is harder to break bullish sentiment into correction than bearish sentiment.

I think many technical analysis are betting on the S&P 500 and DJI hitting their highs seen in April 2010. Maybe it is were they are going, however, I do not like volatility. If you check daily charts, you will see that such up and down swings are very often noted before strong declines.

Bullish an bearish signals

The indexes are down despite the good "job reports" - it looks like the market (investors) starts to ignore good news and focus on bad news.

I do not believe in news analysis - there are always bad and good news and there are no cafeterias that would define the importance of the news. However, the same as in technical analysis you may see moments when bullish or bearish signals (news) are ignored and such moment could be considered as signals as well or at least as a moments to be on alert.

DJI down, Nasdaq up

Indexes are quite volatile today - jumping up and down.

In opposite to yesterday, the DJI is pushing down while Nasdaq holds the ground.

DJI Flat - Nasdaq Down

We had Nasdaq 100 down today, when it lost more than 50% of yesterday loss - this good for Bears. On the other hand the DJI index did hold the ground and stayed at yesterday close level - this is good for Bulls. The S&P 500 index was between them and it was ready to follow the strongest one.

This is a mixed situation. We have to keep in mind that in September the Nasdaq 100 up-move was much stronger than the DJI and S&P 500 up-trend. Respectfully, the Nasdaq 100 could be considered to be oversold stronger. Yet, as I previously mentioned, if an index is oversold and predisposed to move down it does not necessary imply that this index will go down - it is good to wait for some reversal confirmation.

Following Volume

The first scenario (see yesterday post)???: "High volume means big players ... selling at high (indexes are at their 5-month highs) to greedy buyers and to short players whose stop-losses were hit when indexes opened strongly up."

Or it's too early o judge???

New day - New data

New day - new data - new view on the market. In similar to September 30h way we had strong opening. Index futures traders have pushed the indexes up before the bell, yet, in opposite to September 30th way this time positive sentiment on futures market was supported by positive move on the stock market and indexes continued to move up.

As I mentioned above, new day brought new data that on my opinion attention should be paid to:

 - we had very strong volume during today's run up. The strongest increase was seen in the financial sectors (see Nasdaq Financial and S&P Financials). NYSE daily volume is the highest daily volume since July 16, 2010. Nice volume increase was seen in the S&P 500 and DJI sectors. However, the Nasdaq 100 index volume was not as high;

 - we had very extremely strong bullish advance/decline readings;

- we have further increase in volatility on daily charts;

- S&P 500 and DJI broke their high levels seen on September 30, yet the Nasdaq 100 index stayed below its high.

High volume means big players are in the game. The question is what they are doing - are they selling at high (indexes are at their 5-nmonth highs) to greedy buyers and to short players whose stop-losses were hit when indexes opened strongly up. Or they are buying at high because they have information that assures them that the market will go up without any correctional move down??? I do not think retail traders could be selling in such amounts. However, there could be other big players who decided to play short at high - in this case this is a battle between giants and we should see who wins when we see volume down.

Another Blog

Just run into another blog that like me uses MarketVolume's charts in analysis:

http://smartmoneyvolume.blogspot.com

Indexes started this morning by jumping up and down - volatility was always a good sign for bears.

Index Technical Analysis

As I mentioned a week ago in my "Increase in Volatility" post: "My expectation from the coming week are neutral. If we do not see strong decline on Monday, then I would expect to see side-way trading. Even if we see decline, I would expect the indexes to be above September 23's low in side-way action." - this is the exact scenario of what we saw over the last five trading sessions. The S&P 500 and DJI indexes are where they were last Friday (on September 24, 2010) and the Nasdaq 100 index slightly declined, yet, it is still above its low seen on September 23, 2010.

After a week of side-way trading, from technical analysis prospective, I would say, that many of technical indicators have generated bearish signals on Thursday September 30, 2010. However, side-way trading on Friday October 1, 2010 has pushed most of them back into neutral area.

Even most of technical indicators on the indexes hourly charts are in the neutral area, on the mid-term charts (1.5-year chart) we may see many bearish signals and bearish sentiment on these charts is quite strong. I consider that the market is strongly predisposed to have at least some correctional move down by the following reasons:

 - September was the positive month and there is no doubt for me that that market could be considered overbought (we had big positive volume/money accumulation over that period) which does not imply that the market will change its direction but which means the stock market is predisposed to change its direction;

 - After being down we see increase in volatility on the mid-term charts which means that the mid-term traders become nervous which means that when they may start dumping their stocks in order to fix their profit at the current highs - it may push indexes down;

 - Even on some shorter-term frames we may see positive signals, majority of technical indicators on mid-term charts are bearish and after a week of side-way action mid-term trader could become major players on the market;

 - On Thursday (on September 30) before the market opened, futures traders encouraged by good economic reports have pushed indexes strongly higher. However, after the bell (after the market opened), their positive sentiment was not supported by the rest of the market. In opposite, the indexes (Nasdaq 100, S&P 500,DJI, etc) have hit levels where stock traders started to sell and their selling pressure pushed the market stronger down. Such behavior of the stock traders, when they sell by ignoring positive news, I usually consider as a break down point when the market is on the edge to move down.

My bearish mood does not mean that the stock market must necessary go down. For many traders, the conservative trading strategy would be waiting when the indexes (S&P 500, Nasdaq 100 and DJI) break either their low seen on September 23rd or their high we saw on September 30th.

Increase in Volatility

It was a volatile week. Strong opening on Monday, then tree negative sessions in a row (Tuesday-Thursday) and then again strong opening on Friday which basically made the past week positive. Even the Tuesday-Thursday's move down is quite shallow it is the strongest one since the beginning of September.

I'll try to be short this time. From one side my technical analysis suggests that the indexes are overbought and we may see some strong move down in the future. From other side we still did not see any confirmation signals of beginning of such move. Additional negative sign is that the past week has brought increase into volatility on the longer-term chart.

My expectation from the coming week are neutral. If we do not see strong decline on Monday, then I would expect to see side-way trading. Even if we see decline, I would expect the indexes be above September 23's low in side-way action.

Index Trading

side-way trading on the S&P 500 and DJI indexes and eight straight in a row positive trading sessions on the Nasdaq 100 index - this is what we have by the end of the week. There is quite different picture on other indexes. As an example, the Dow Jones Utilities (^DJU) index is already in the correction down since September 9, 2010.

Overall, we have not seen negative moves on main market indexes over the past week. However, the same as I mentioned in my few previous posts, I would say that intensity is growing.

Some points to consider, which I think are important.

• The advance/decline issues and volume ratios are moving down on all three indexes (Nasdaq 100, DJI and S&P 500). On the DJI and S&P 500 indexes the advance/decline ratio is already negative. This indicator tells that the majority of stocks are already in decline. The indexes are not down because of the strong earnings reports and strong moves on some big companies (one company make 5% up and five companies make 1% down each - you have index flat).
•  We had big bullish volume surges on many indexes over the past couple of trading sessions. The strongest bullish volume surges were noted in the insurance and internet market sectors. Such surges indicate that big institutional traders make a decision to fix profit at the top and sell big number of shares to greedy retail investors. Personally, I would stay away from the investing into insurance companies, especially by knowing that the Government is putting hand on the health insurance which will take away some profit from the insurance companies.
•  Taking into account big bullish volume accumulation on many indexes over the past two weeks, the stock market could be considered overbought. The indexes (Nasdaq 100, S&P 500 and DJI) did not have any noticeable correction over the past two week.
•  We have negative divergence on many technical indicators - when the price moves up and make new highs yet an indicator does not make new highs. As a rule this suggests changes in the stock market sentiment.
•  All over the media you may hear positive news, like there are no negative news at all - this is a negative sign for me. I consider it like attempt to manipulate sentiment of small traders and make them buy while "big boys" (who invest big and who express opinion on news) are dumping.

Some positive signals

• Longer-term volatility is down - this is a positive sign.

In summary, I would say that that technical analysis suggests that the market is predisposed to move down. Some indexes and market sectors are already in decline, yet, main market indexes are still at the top. My opinion is that we may face bearish trend, yet I could be wrong. If the market is predisposed to move down it does not necessary mean it will go down - we still may see side-way trading. A conservative trading strategy could be waiting for confirmation signals before investing.

P.S. Some interesting quote from the news - something negative that is not strongly highlighted in the media: "Regulators on Friday shut down three Georgia banks and one each in New Jersey, Ohio and Wisconsin, boosting to 125 the number of U.S. bank failures this year … The number of bank failures is expected to peak this year and be slightly higher than the 140 that fell in 2009. That was the highest annual tally since 1992, at the height of the savings and loan crisis. The 2009 failures cost the insurance fund more than $30 billion. Twenty-five banks failed in 2008, the year the financial crisis struck with force; only three succumbed in 2007."

Intensity is growing

Seven trading sessions in a row the Nasdaq 100 have been positive. The rest of the indexes are forth session in a row in the side-way move. Intensity is growing...

Advance/Decline ratios on the S&P 500 and DJI are already negative...

Nasdaq 100

The indexes continue to move almost flat, with exception of the Nasdaq 100 index. It looks like the indexes are ready to go down, yet they wait until the Nasdaq 100 collect more overbought power.

The are two interesting thins happened today.

We had extremely strong volume surges in the Nasdaq Insurance and Nasdaq Internet market sectors. Keep in mind that this is sixth positive trading session in a row on the Nasdaq 100 index. These surges in the Nasdaq sector indexes would push the Nasdaq in stronger overbought condition.

Another point worth mentioning is very low volatility by the end of today's session on all indexes. I have already mentioned several days ago in the "Volatility Down" post (on September 9, 2010) that such drop in volatility is considered as "The Squeeze" and very often noted before sharp and strong swings. In addition, such low drop in volatility is very unusual in period of futures expiration - this Friday we have options expiration, futures expiration and index options expiration ("Triple Witching Week").

Increase in Volume

As I mentioned two days ago "sharp drop in volatility (also known as "the Squeeze") could be nicely seen on Bollinger bandwidth on hourly chart. Such Squeezes to the volatility lowest levels are usually noted before strong and sharp moves." - we had yesterday strong and sharp up move.

Another point that is worth mentioning is an increase in daily trading volume (nicely seen in the Nasdaq 100 sector) over the last three trading session. While technical analysis continue to remain bullish it could be "too close" to the "to late" to open a long position. At the same time it would be too early to play short.

DJI, S&P 500 and Nasdaq indexes have hit their resistance levels seen in the middle of June and at the beginning of August 2010. The indexes bounced twice from the levels they are right now and there is a possibility we may see the third break down. Still, it could be nice to see a couple of sessions of side-way trading prior to that.

Volatility Down

As I mentioned in my previous post ("Trading Strategy" post on September 5, 2010): "it is still difficult for me to believe in strong recovery (Yet, I could be wrong). Because of that I would not be playing long at this moment. At the same time there are no bearish signals and because of that I would not be playing short either" - the past week has gone mostly under side-way pattern with some positive bios.

By taking look at technical indicators, I may say that majority of them continue to be bullish and suggest possibility of further development of up-move. However on many technical indicators you may notice negative divergence - when price makes new high, yet an indicator does not makes new highs. Such divergence in technical analysis usually signals change in the sentiment with possible reversal in the near future.

Another point worth mentioning is that the volatility has dropped over the past week. While volatility still remains high on daily charts (1 bar = 1 day and higher time-frames), on lower time-frame charts (hourly charts and lower) we may see substantial drop in volatility. Overall this could be considered as a positive sign. At the same time sharp drop in volatility (also known as "the Squeeze") could be nicely seen on Bollinger bandwidth on hourly chart. Such Squeezes to the volatility lowest levels are usually noted before strong and sharp moves.

The third point I would like to drag your attention to is that the indexes (S&P 500, Nasdaq 100 and DJI) came close to the resistance levels seen in the middle of January 2010, in the middle of June 2010 and at the beginning of August 2010. No doubt that this level is sensitive to mid- and long-term traders and mostly their sentiment would define the further trend.

Overall, I would say that we may see some strong moves in coming days. Because of the negative divergence and overbought indications on the shorter-term charts, I would expect to see some correctional move down. Since we do not see strongly overbought indications on the longer-term charts, it is difficult to say at this point of time whether this correction (if it occurs) could grow into stronger down-move.

Trading Strategy

Last week in my "Side-Way Trading" post I mentioned about a possibility of short-term up move, yet, I was skeptical about strong up-move. It appeared to be that I was wrong. We did have a strong up-move. One more time the stock-market has proved that sooner or later everybody makes mistakes in analysis and stop-loss strategy should be used not just to cut losses but to protect profit as well.

During the last four positive sessions the indexes (Nasdaq 100, S&P 500, DJI, etc) have come close to their June's and Augusts' high levels. So far, the odds are good (from technical analysis prospective) we may see the indexes third time at those levels. Twice the stock market (indexes) has bounced down from these levels and most likely we may see slow down again.

Majority of technical indicators continue to be bullish and as I already mentioned, the technical analysis suggests that we may see the indexes moving higher. There are only two negative sings from my point of view.

First thing is high volatility level. The stock market continue to be highly volatile and this is a bearish sign. In such volatile market we could have strong down move in the same short period of time as we had the current 4-day up-run.

Second negative thing, from my point of view is that the market was not strongly oversold, yet it did make strong up-move in short period of time. It is more like some institutional investors came back from vacations, they saw stocks cheaper than a month ago and they started to buy. What is going to happen when their buying power became exhausted?

Because of these two points above, it is still difficult for me to believe in strong recovery (Yet, I could be wrong). Because of that I would not be playing long at this moment. At the same time there is no bearish signals and because of that I would not be playing short either.

One of the rules in my trading strategy is staying in cash until I see a pattern. I missed the last up-move - I did not lose money on that, I just did not make as much as I could. Still, the fact is that I missed this move and now it is better to stay in cash in order to avoid another mistake. My view on the current stock market condition is that I would expect to see indexes at their June's and Augusts' high levels. Then, depending on how those levels are hit (is they are hit) I would built further analysis.

Side-Way Trading

As I mentioned in the "S&P 500 Financial" post on August 20, 2010: "At this moment the majority of technical indicators remain to be bearish by suggesting the higher odds of further decline." - the indexes (S&P 500, Nasdaq 100 and DJI) are lower, yet if you take at the hourly chart (1 bar = 1 hour) you will see that most of the time the indexes were in side-way action.

Side-way characteristics of the current down-trend could be noticed from the beginning (August 9, 2010) of this down-trend. It is difficult to compare the current down-trend to the previous down-trends we had over the last couple of years. Te previous down moves where more consistent and had much less side-way trading sessions. It is already almost a month since the indexes in the bearish move and, so far, during the recent decline, we have not seen two strongly negative session in a row. Yet, mainly because of the side-way trading, we still have not seen panic trading which would be characterized by the strong bearish volume to the price down-side and strongly oversold advance/decline issues and volume readings.

The other characteristic of the current down move is the high level of volatility. The volatility is not extremely high, yet it remains steady on the high level.

The same a s a week ago, I would say that the majority of technical indicators remain to be bearish by suggesting the better odds of the further decline. Yes, the Friday's advance has pushed some technical indicators into bullish sentiment and if you take a look at shorter-term technical analysis you may see some bullish signals. However, in order to have a strong up-move, in addition to the bullish signal, the stock market should be predisposed to the up-move. So far, we may see bullish signals on shorter-term frames, yet, personally, I have not seen any strongly oversold indications. Therefore, I would not place a long bet.

S&P 500 Financial

Last week in the "Volatile Markets" report (on August 15, 2010) I stated: "I would say that the odds of the further decline are higher. However, taking into account volume surges and low advance/decline reading on August 11, the one who is in short may consider setting a stop loss to protect a profit already earned since the time when August 6’s lows were broken.... the volatility level is still high, which means that we may see sudden and strong reversal, therefore it could be recommended to monitor charts daily.". The stock market continued to be volatile: we had strong bounce up on August 17, 2010 and then continuation of decline on August 18-20, 2010. By weekly results the indexes (S&P 500 and DJI) moved lower. The exception was the Nasdaq 100 index which stayed above its August 16's Low.

The Nasdaq 100 index was less bearish than other indexes, which could be explained by high bearish volume surges during the decline on August 10-12, 2010. The S&P 500 and DJI indexes did not have such strong bearish trading activity in that period, therefore they were more bearish.

At this moment the majority of technical indicators remain to be bearish by suggesting the higher odds of further decline. However, I would like to drag your attention to the S&P 500 Financial index. If you take a look at this index you will see extremely strong bearish volume over the past two week. We have not seen such strong bearish trading in the financial sector since October 2009. This volume explains that there are many traders in panic of double dip reception (widely advertised all over the news), with fresh memory of crash in the financial sector, who are trying to pull funds out the financial stocks while other (I believe institutional traders) are buying from them in huge volumes (because those stocks most likely still under-priced).

Because of this strong bearish volume in the S&P 500 financial index I may assume that we could be closed to the bottom of the recent correction. Yet, it would be nice to see strong oversold signals first in the S&P 500 and DJI indexes - so far we have not seen strong bearish volume on these indexes on daily charts,

Volatile Markets

I mentioned a week ago in the "Trading strategy" post on August 8, 2010: "even I more bearish (because of negative divergence I see on many charts), I would say that (as in most cases of side-way trading) a simple strategy could be used.... If lower line of side-way corridor (low on August 6) is broken - odds would favor the bears." - this is exactly what happened on August 1, 2010 - the lows were broken and the indexes continued to decline.

Now, majority of technical indicators are bearish and suggest good odds of further decline. Yet, as it always happens in case of technical analysis - there is always something that points in opposite direction.

In the current situation, on August 11, 2010, the strong decline has generated great bearish volume surge. In addition, on that day we had extremely low advance/decline volume and issues readings. If we compare August 11 to July 16, we will see that even smaller bearish volume has pushed indexes up. Furthermore, there is still a possibility that this volume may cause up-move. At the same time, from the bears prospective of view we may say that volume and advance decline signals on August 11 were too close to the recent highs to consider them as strong bullish signals. Another point is that even we had extremely low (extremely oversold) advance/decline reading in the S&P 500 and DJI sectors, the NYSE composite advance/decline volume was not even strongly oversold - yes, it was bearish but not strongly.

Overall, I would say that the odds of the further decline are higher. However, taking into account volume surges and low advance/decline reading on August 11, the one who is in short may consider setting a stop loss to protect a profit already earned since the time when August 6’s lows were broken.

Another aspect that should be considered (on my opinion) is that the volatility level is still high, which means that we may see sudden and strong reversal, therefore it could be recommended to monitor charts daily.

P.S. It does not looks like we have quite summer vacation trading...