Too Far Too Fast?

There were good positive signals last week (see the "Is it Recovery?" post on June 13, 2010) and we had positive trading this week. I guess, now (as there always was, is and always will be) the same traditional question is "What is the next?"

By summarizing cons and pros of mine technical analysis I may say that the longer-term technical indicators suggest possibility of further recovery and shorter-term technical indicators point to a possibility of move down.

From one side we had a strong correction and it would be logical to see a strong recovery. From other side there are worries about Europe and, as I already mentioned before, the stock market run "too far and too fast" in period from March 2009 until April 2010 (CheckS&P 500 and Nasdaq 100 charts). The U.S. economy did not do as well as the Wall Street. I would consider that there could be a possibility that the market was pushed too far up by big institutional traders (hedge funds and big guys) - the same as during the stock market crash the market was (on my opinion) pushed down too far by the same "fellows".

From the technical analysis prospective, as I mentioned above, the longer-term indicators suggest possibility of further up-move. We may see positive money flow, volatility slowly declines, etc. The only thing that bothers me is that I have not seen high volume at the beginning of the current recovery. High volume at the beginning of a recovery usually suggests that the big institutional traders (those who run the market) expect strong up-move and do not mind invest into the market which is on the rise from the recent support. The trading volume over the past week was low (actually regular) which would not indicate greedy buying. I do not want to tell that this is the end of the recovery. We may see some drop down and then further run towards new highs. There is a possibility of such scenario and technical analysis points to that at at this moment. However, if "big money" do not believe in strong recovery, for me it's difficult to believe in it either. Furthermore, I would be cautious and monitor stock market sentiment more closely.