Volatility

As I mentioned a week ago in my "Volatility, Volume and Economic News" post (on July 24, 2010): "results of my technical analysis suggest that the stock market ... is quite weak, unstable which and may reverse into another down turn" - we had volatile and overall negative week. Yes, the stock market (S&P 500, Nasdaq 100 and DJI indexes) only about 1% down from the previous week close, yet, we saw quite negative trading over the past five trading sessions.

There are three specific factors that should (on my opinion) be paid attention to. First one is an increase in Volume, second one is increase in volatility and the third one is that the indexes (see my "DJI Chart" post on July 4, 2010) are close to their previously seen resistance levels.

From one side an increase in volume during the decline on July 29, 2010 could cause the indexes to move up. The high volume is quite noticeable in the Nasdaq 100 and S&P 500 sectors. Taking look at this as well as at the fact that we saw change in the money flow on July 30, 2010 a technical analyst may assume that we may see  some up-move reaction on that "strong selling". From other side, not all indexes had strong bearish volume surges (surges during price decline) on that day. At the same time by going into the higher time-frames we may see that the volume increase is not as strong as it looks on intraday charts. Another factor is that even these bearish volume surges were noted during the price decline, actually, they occurred not far from the resistance seen on July 27, 2010.  From this prospective, I would say that my technical analysis suggest that we may see some up-move however I would not expect it to be very strong.

The volume leads us to the second factor - increase in volatility. We saw frequent changes in the trend over the past week (especially last two trading sessions). This is a bearish sign. It's not good to see increase in volatility close to the top. Very often it could mean that institutional traders (traders that invest huge amount of funds) are trying to sell at the top yet they cannot sell everything they have because they do not want to create selling pressure and they do not want to push stock market down before they dump what they want to dump.

Overall, I would say that you may find a number of technical indicators that suggest possibility of up move. My technical analysis tells me that this possibility exists as well, yet, so far, I do not see the indexes gonging higher their June 21st and July 27th highs. From the mid-term prospective, last five trading sessions could be considered as side-way trading with increase in volatility. At the same time longer-term charts indicate more bearish signals. Because of that I would expect to see some development of bearish trading and I would monitor charts more closely during the trading hours to see confirmation of that on intraday levels as well.