Sunday, January 10, 2010

Mixed Market

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Past week was market by a side-way trading on the DJI and Nasdaq 100 indexes - these indexes are basically on the same level where they were on Monday. The S&P 500 in opposite to the rest of the market moved slowly up.

There are several things that I would like to mention. First one is that during the past week, the S&P 500 index up-move was supported on high volume. The S&P 500 index daily volume on January 7, 2010 is one of the highest volumes since November 2, 2009 (the only higher daily volume was noted on December 4, 17 and 18, 2009). The same with Dow Jones Industrials (DJI): the only higher daily volume than the daily volume on January 7, 2010 was noted in DJI sector on November 17 and 18, 2009 (since November 2, 2009). This would signal that there is a possibility that the current side-way with positive bios trading could be close to the end. As a rule high volume during the price advance could lead to the shift in the supply/demand balance when the number of Bullish traders became exhausted.

Second thing that I would like to mention is the low level of volatility. As a rule, if the market would be going for a correction we should be seen increase in the volatility. In opposite we see big decrease in volatility. Actually, the volatility level on DJI and S&P 500 index has dropped to the lowest since October 17, 2007 level. Traditionally, the low volatility suggests stability on the market and dominance of Bullish sentiment. Yet, some analysts characterize strong drop in volatility as a squeeze before some strong events - like a "silence before storm". The good thing is that if the market meant to go into correction, most likely it will not be a stock market crash and majority of traders should be able to spot it.

Third thing that I would like to mention is the strong recovery before the market close on Friday, January 8, 2010. This is not a typical recovery for overbought market...

Last thing worth mentioning, from my point of view, is the high volume surge in Citigroup stock on December 15-19, 2009. This volume was even higher than the volume in C stock during the stock market crash. I usually do not look for stocks, however we all know that the Government has (or had) part of the shares of Citigroup. Was it Government dumping bailouted shares... If yes then what does the Government know that we do not know? If it not the Government then who was dumping such huge amount of Citigroup shares in panic???

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