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,