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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.
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