S&P 500 Chart

Last week in my "Mixed Market" post on January 10, 2010, despite prior up-move in period from January 4, I was a little bit sceptical about further up-move (see four points I mentioned in that post). Now, one week later we have indexes lower after volatile week. Coming back to those four points:

1. High volume during the up-move in period from January 2 until January 8, 2010 - this point is still actual and this bullish volume still would suggest overbought market with possibility of a decline;
2. Second point was low volatility with possibility indication of coming action "squeeze before strong events" - actually we had some strong movements up and down during this week, and actually volatility started to climb up which is a bearish sign.
3. Third point was that I did not like sharp up-move at the end of trading on Friday January 8, 2010 since it did not fit overbought condition. However, already on Monday January 11, 2010 strong opening and then strong decline down changed my view. I already mentioned several times before about sharp opening and then strong decline at resistance levels as a good Bearish signal.
4. Forth point was huge volume in C stock (Citigroup) - this volume still bothers me, since I still do not see a reversal reaction on it.

Now, coming back to the technical indicators and technical analysis I may say that majority of indicators on NASDAQ 100, S&P 500 and DJI (indexes that I track) charts are bearish. However, these indexes already were bearish a few days ago on January 12, 2010 and then we had a strong recovery on January 13, 2010. Now the indexes down again and technical analysis generates bearish signals again. There is only small one difference between current bearish indications and bearish signals on January 12 - volatility now is higher. This would increase the odds of possibility of further decline.

I have posted the S&P 500 index chart with indicators I use in my technical analysis. I have not done it for a month assuming that those who follow my blog already knows what tools I use and they have access to the same charts in real time. I usually look at hourly charts (1 bar = 1 hour) and hourly charts are not the charts that help to predict a mid- and long-term trend. These charts are intraday charts and they should be monitored during the trading hours.

Chart #1: The S&P 500 chart with some elements of technical analysis

S&P 500 Chart

It is a month as the market has been trading side-way (see the S&P 500 index chart below). I have already been pointing on sideway trading in my previous posts (starting from November 15, 2009: see my "Technical Analysis" post), and it looks like the market continues to follow this pattern. Last week in my "Sideway Trading" post on December 5, 2009 I expressed my expectation to see some action on exiting from side-way trading, yet, it looks like we had another bounce from the lower line of the side-way corridor and now the indexes (S&P 500, DJI and Nasdaq 100) are headed to the upper-line of this corridor (resistance line).

At the current moment, the majority of the technical studies on my chart are bullish. However, we are coming closer to the upper corridor line and up-move become weaker and we may face another bounce down.

Now, after 1-month of sideway trading I would not bet on up-trend until I see the indexes, at least S&P 500 and DJI, are breaking strongly the resistance line (not breaking it for 15 min period and a for a few points only). At the same time I would not bet on the down-trend until I see the same indexes moving below the lower line (support line) of the sideway-corridor. The indexes have been trading in this corridor long enough to assume a possibility that overbought sentiment accumulated in the first half of November is not in force anymore and most likely it will not push the market down. Now, on my opinion, the longer-term sentiment is the only force that may push the stock market down. We may see that since July 10, 2009 the main indexes (S&P 500, Nasdaq 100 and DJI) were in the strong up-move and we may assume that they could accumulate overbought sentiment and without a new fuel (new investors coming into the market) we could face a strong correction (at least the same as we had in second half of June 2009).

Still, since we do not know what exactly may happen, we may wait for clearer and stronger signals. At least this is my view and my position on the current market.

Chart #1: The S&P 500 Chart with elements of technical analysis:

Technical Analysis

In my last "Trading Strategy" post on November 8, 2009 I have mentioned a possibility of the indexes (Nasdaq 100, S&P 500, DJI, etc) stacking in a sideway action at their October's high levels. The next day, on Monday November 9, 2009 we still had a strong advance and since then the rest of the week we may see that the indexes have been trading mainly sideway (see the S&P 500 chart below): the S&P 500 index exactly at its October's high levels, the Nasdaq 100 index a few points higher and the DJI index has made new 13-month high.

The S&P 500 Chart with elements of technical analysis:
Selling/Buying Volume Oscillator, Advance/Decline Oscillator, MarketVolume Oscillator,
MACD, RSI, Stochastics, McClellan Oscillator, Average True Range in Percents.

In technical analysis it is common to take a look at the history, and from the history you may see that in majority cases sideway trading at new high level ends with a correctional move down. As a rule during this sideway trading you may see strong bearish signals. If you take a look at the chart (S&P 500 chart above) you would see that on Thursday, November 12, 2009 all technical indicators (except volatility indicators) have generated strongly bearish signals. Yet, on the next trading day (Friday, November 13, 2009) the indexes bounced up from their lower level of the sideway corridor (see the same chart above).

Last week I mentioned: "At that time (in September and October) the indexes have been moving sideways for several trading days … we may see some sideway action at this level again ... If the market starts to move sideways the odds are high that the technical indicators will become bearish." That is what we saw on charts: sideway move and bearish signals on Thursday. However, in the same post I have brought some reasons why I would not consider these bearish indications as strong signals, and why I would rather consider waiting. There were two main reasons why I would avoid trading short at that moment: a) no high volume during the up-move and b) no increase in volatility.

Absence, of high volume during up-move indicates that this up-move was not strong enough to generate greedy buying when investors start to rush into the stock market with the hope to jump into "the last wagon of the running train" - as a rule such action leads to a misbalanced in the supply/demands and at least to the short-term correction down. Absence of increase in volatility indicates that the current sideway move did not generated any panic among traders which suggest there were no increase in the number of bearish traders as well. These two reasons kept me last week from trading short, and the same two reasons still keep me out of it.

Right now technical indicator on the major index charts (S&P 500, DJI and Nasdaq 100 charts) are mixed. You may see Bullish indicators as well as some indicators remain bearish:

 - SBV (Selling Buying Volume) Oscillator is moving sideways at this moment which is a neutral sign. Yet, the bullish volume (accumulated since November 4, 2009) still could be considered as a force which is strong enough to push the stock market down into a correction.

 - The absence of the Bullish volume surges (no green MVO) suggests the higher odds of further up move.

 - The advance/decline oscillator is almost flat, yet, it moves up from its most recent low which could be considered as modestly bullish signal.

 - The same as A/D Oscillator, MACD is almost flat, yet, it is moving up from its recent low which is bullish sign, on the other hand it is still in the negative area which could be considered as bearish sign. Overall, MACD could be considered bearish with tendency to become Bullish.

 - General RSI direction is down and this is bearish sign in technical analysis.

 - General Stochastics direction is up and this is a bullish sign in technical analysis.

-  McClellan Oscillator is still in the negative territory which is bullish, yet, it is very close to cross the center (zero) line which in technical analysis is considered as a "Buy" signal.

 - ATR remains on the same level and this is very nice indication (as already mentioned above) of bullish sentiment."

Overall, I would consider technical analysis mixed at this point of time. There is still an existence of a danger of a correction down. At the same time, some technical indicators push me to believe that even if we see a correction it should not be a very strong move down, unless I see at least changes in volatility sentiment (increase in volatility). At the same time indication of resuming of up-move are not strong enough to be strongly Bullish.

I am not stating that I am always right, and that my technical analysis is perfect. I am just trying to share my thoughts about current stock market sentiment and possible development of a future market trend. It helps me to put my thoughts in the order and I hope it may help somebody in avoiding a mistake that can become "financial suicidal". I would rather recommend doing your own technical analysis and checking all my statements by yourself before even considering to follow them.

S&P 500 Technical Analysis

A week ago in my "Technical Analysis" post on Sunday September 13, 2009 I have pointed to a bearish sentiment and overbought signals on majority of technical studies. However, in the same post I mentioned: "As a rule, when market comes to some overbought level it is stuck at this level for a couple of trading sessions and moves side-way before a decline." As you may see the history analysis helps in making a correct decision not rushing into a short trade even in situation when technical analysis is in favor of a correction. In one trading session, on Thursday September 15, 2009 the stock was back in the up-trend. On that day (September 15), all technical indicators on the Nasdaq 100, S&P 500 and DJI turned from bearish into bullish.

Now, by the end of this week we have a similar picture. Again, many of technical studies on the Nasdaq 100, S&P 500 and DJI charts point to overbought (short-term) levels and bearish sentiment. And again, I would recommend taking look through the history of these indexes. You should see that in the resistance (before a correction) we have a few sessions of sideway trading. In opposite an exit from a support is sharp and strong. This is not a 100% rule, yet, I would say that the odds of having a sideways trading in resistance are quite high.

The last two weeks’ rally up (from September 3, 2009) has push the stock market and indexes into overbought condition ( for a short term at least). A correction down would be healthy for the market. However, a possibility of sideway trading still exists and personally I would watch the Nasdaq 100, S&P 500 and DJI indexes for stronger bearish signals.

Right now the technical analysis applied to hourly charts shows following:

1. High volume surge on September 15-16, 2009 during the price advance (see big green MVO) suggests a possibility of reversal down.
2.  The RSI (Relative Strength Index) and Stochastics have dropped below 70 and 80 lines respectfully and both these indicators are in decline which is a bearish sign.
3.  The Advance/Decline Oscillator declines and is close to the center (zero) line. This could be considered as a bearish signal as well.
4. The MACD moves up, yet, this move is almost flat. Even this indicator is bullish, it’s not a strong signal and it could turn into bearish signal very easily.
5. The SBV Oscillator declines slowly which indicates bearishness, yet, it is still has high positive readings. It would be nice to see it dropping closer to zero line before considering it as a strong bearish signal.
6.  McClellan Oscillator is neutral on the Nasdaq 100 and S&P 500 indexes - it moves flat at a zero line. However, McClellan Oscillator applied to the DJI index is positive (above zero line and in flat move).
   

The S&P 500 Chart with elements of technical analysis.

S&P 500 Rally Up

We had another week of strong rally up. The stock market already show short-term overbought levels last week. Still, the S&P 500, DJI and Nasdaq 100 indexes rallied up without any correction serious short-term correction down… It is not healthy when market goes up for a long time without any correctional movement.

The Dow Jones Industrials just passed its November-December 2008 highs. The S&P 500 index ran over those levels without stopping and is a few points below its November 4, 2008 high. The Nasdaq 100 index, not loaded by financial and automotive companies, run over all these sensitive levels and the next line for this index goes through March 2008 Lows – March 2007 Lows – April 2006 Highs – January 2006 Highs.

Yes, if we take a look at longer-term charts (7-year chart, 5-year chart, 3-year and even 1-year chart), we may see that technical analysis on them is bullish. Majority of technical indicators on these longer term charts are positive and show development of the longer-term up-trend. However, if you take a look at shorter-term charts (60-day chart and lower) you may notice that the indexes on those charts are overbought and at least short-term correction would be very healthy for the stock market. One of the rules of technical analysis is: the longer market goes up without a correction the stronger correction could be.

During the last two week of rally up we saw increased volume activity which would indicate greedy buying. It looks like Investors were running into the market on the positive reports – numbers have exceeded the expectations that "were purposely lowered at the end of the last yea". When this wave of greedy investors becomes exhausted we may face a possibility of strong move down. As a rule greedy buying does not stop suddenly and market does not reverse down sharply (in opposite to reverse up from down-trend), but we may see sideway move first. Actually, over the last two trading sessions we may see some signs of that.

So, over the last week we run into several occurrences when price based technical indicators on hourly charts (60-day chart) already signalled a possibility of the down-move. Even Advance Decline Oscillator and McClellan Oscillator pointed to a possibility of the correction. Only SBV(20) on the 60-day chart remained positive by showing the positive money flow. Below you may see this week chart and how technical analysis looks by the end of the week.

S&P 500 again

Nice week of positive market we had. The indexes reacted by a strong rally up on the big volume surge during the price decline on July 8, 2009. Now, we may see some picture opposite to the one we saw a week ago. Now, we have nice volume surge during the price advance (see green MVO).

Basically there are two main factors that should be paid attention to: high volume during the recent advance and the resistance line that is hit by the indexes (S&P 500 and DJI in particular).

Right now the indexes are at the same resistance levels they were in beginning of June, 2009. I will repeat what I mentioned in my previous “Volume Technical Analysis” post on July 15, 2009 that the current resistance line could be extended back to December 2008. The indexes spent some time moving around this line and then reversed down in December 2008 and in the begging of June 2009. Furthermore, this level could be considered sensitive to many long- and mid-term traders and there are good odds we may see indexes moving sideway at this level again with possible bounce down.

Second factor of high volume surge during the price up-move witnesses that the there is a possibility of overbought market (at least in short-term). This should halt the recovery and possibly may push indexes down again.

Regarding other technical studies you may see on my chart (see below) I may say that

1. The SBV Oscillator readings are still at high positive levels which is a bullish sign. However, we started to see some changes in the SBV direction, which would point to the beginning of changes in the money flow;

2. I have already mentioned about big green (positive) MVO that points to the high volume surge during the price advance. This volume surge may cause changes in the supply/demand balance and as a result it may lead to reversal.

3. Advance/Decline Oscillator is in the declining mode and is Bearish (it started to decline on Friday). From this we may say that, now, investors (traders) are not focused on the advancing stocks as they were in the beginning of the week. If the A/D Oscillator continues to decline into negative territory we may say that traders become more attracted by declining stocks.

4. RSI and Stochastics suggest overbought market. However, they are still bullish by moving above 70 and 80 lines respectfully.

5. McClellan Oscillator crossed zero line on its way down and this is a Bearish signal.

As you see, overall, my technical analysis is not Bullish. It is difficult to say that it is Bearish either. I would say that in short-term the indexes are overbought and we may see a correction down. Yet, some of the technical indicators are still Bullish and we still may see some sideway- and up-move prior to a correction. If the indexes (S&P 500, Nasdaq 100 and DJI) go flat I would watch the sentiment closely, since it may push sentiment into bearish mood.

S&P 500 Chart

Last week I was bearish (see my previous week "S&P 500 and DJI post")– not as much this week. This week we saw nice volume surge during the price decline - see red MVO (Market Volume Oscillators shows how big volume surge is in relation to the recent average volume). I mentioned last week in the same post that it would be nice to see a volume surge which could mark the panic selling during the decline and possibility of reversal. Now the question is if this volume surge is big enough to reverse the market from the correction.

The volume surge on July 8, 2009 was quite big, yet not as big as the one on May 20, 2009, May 6, 2009 or April 20, 2009. However, since the middle of the May 2009 the average volume is down and in relation to this volume the volume surge on July 8 could be considered big. I would say that because of this volume, we may see up-move for a couple of trading session. If it happens I would recommend monitoring charts more closely. The other technical indicators (beside volume and MVO) on the hourly charts are mostly bullish as well and I would say that my technical analysis shows good odds for the S&P 500 index running over 900 and the DJI index going above 8,400.

However, the correction we have now is quite big and prolonged (I have alerted about it almost two months ago) and it is difficult to believe (still possible) that this single volume surge may mark the end of this down move. That is why I would recommend monitoring charts over the next couple of sessions. If the recent volume surge is ignored and the indexes go down again then I would consider the stock market in serious trouble. If at this moment hourly charts (1 bar = 1 hour) are more or less bullish then I would not say the same about longer-term charts. I you take a look at 3-year chart (1 bar = 3 days) you may see what I mean – the next check point for the S&P 500 and DJI indexes could be April 21, 2009 lows (I do not mentions the Nasdaq 100 because it nos heavy loaded by financial and automotive companies that trouble the market).

Chart 1: S&P 500 hourly chart with elements of technical analysis

S&P 500 Technical Analysis

With exception of Monday, the past week could be considered positive. Yet, by the end of the week the indicators make me somewhat cautious about the further trend. The correction we had from June 12, 2009 until June 23, 2009 could be considered as the strongest down turn since March 9, 2009 (since the market is in the longer-term up-trend). The high levels the indexes hit in the beginning of June became a strong resistance barrier. The Dow Jones Industrials (^DJI) has been fluctuating around the same resistance level for a month (from December 1, 2008 until June 9, 2009). The S&P stuck close to its current resistance in December 2008 as well. Yes, the Nasdaq 100 index is one of the indexes that recovered stronger, but we should remember that the Nasdaq 100 represent non financial companies and was less affected by 2008 stock market crash.

So, we may see that June’s high levels are quite sensitive and even if indexes continue to move higher by recovering from the recent correction I would consider that the odds are pretty good that we may see them stuck at the marked resistance level again. I would say that we may even see second bounce from there (this is just my opinion based on my personal technical analysis).

Despite the recent up-move (from June 23, 2009), at the current moment my longer-term technical analysis is not very optimistic. For a longer term sentiment I usually refer to the daily charts: from 1-year (1 bar = 1 day) to 3-year (1 bar = 3 days). I do not give snapshots of these charts in this post, however, I will try to post them in one of my next posts. All these charts are Bearish at this moment: I see negative money flow, I may consider that the market become somewhat overbought after the strong 3-month recovery rally (March-May 2009), average daily trading volume is down which means that the first wave of Bullish investors who push market up become exhausted, etc. Overall, my longer-term technical analysis is Bearish. However, on the other hand, we should not disregard the fact that during the recent correction down the main indexes (S&P 500, DJI, Nasdaq 100, Russell 2000…) were released from their overbought conditions at least partially which could keep the market and indexes at the current high levels.

In a shorter term – see S&P 500 index hourly chart below – we may see some sentiment changes towards bearish mood: SBV moves down, high green MVO (volume surges during the price up-move), declining Advance/Decline Oscillator, declining MACD and declining RSI. Stochastics is still could be considered positive and McClellan Oscillator is still above zero line which is a positive sign as well. In summary, I would say that my shorter-term technical analysis results point to the possibility of slide. Again (as I mentioned before) this is intraday chart and should be monitored during the trading hours for possible changes in the sentiment and trend.

Chart: S&P 500 index 60-day view (1 bar = 1 hour)

Simple Technical Analysis

Just a short post.

My longer-term technical analysis show the bullish market.  Over the short-term (see chart below) some Bullish dominance as well.

Three factors that I consider worth attention: a) volatility is down to the Nay 2008 level; b) volume on the Dow Jones Industrials and the S&P 500 indexes is down; c) S&P 500 and DJI are at the January 6, 2009 high levels which are considered by many traders as resistance lines from which we could have bounce down. I'll try to provide more details on these three factors in my next post.

S&P 500 Shorter-Term Chart

Those who follow my blog should remember the "S&P 500 Chart" post on May 24, 2009 where I draw the resistance line break of which would signal the end of the flat market we saw in May 2009. It looks like, now, we are back in the bullish market - at least technical analysis of daily charts (1 bar = 1 day) is positive again after being negative for the biggest part of May. Still, I would encourage everybody to take a look at higher timeframe charts by themselves to see what market stage we are in. Even if you do not trade indexes, even if you do not-trade in mid- and long-term, in some cases it could be useful to have some picture about situation on the stock market. It may help you to august your personal trading strategy to the current sentiment.

Taking a look at shorter-timeframe chart (hourly chart: 1 bar = 1 hour) we may see mixed sentiment, yet, with bullish dominance (see S&P 500 chart below). When I mention hourly charts I assume 3-day and smaller trends. Majority of technical indicators on this chart have bar period setting less than 20 and multiplying it by 1 hour (bar time frame) you will have maximum 20 hour coverage which is about 3 trading sessions (one trading session is six and half hours long). However, the market is still volatile (see ATR, VIX and other volatility indicators) and I would not bet on this chart for longer than a day ahead. Furthermore, this chart should be monitored during the trading hours.



Overall, as I have already mentioned above, my technical analysis applied to hourly charts show dominance of bullish sentiment (see direction of arrows for each technical indicator). There are still two negative signs: declining SBV and declining Advance/Decline oscillator, however, SBV is almost flat and previous Adv/Decl red area is much bigger than the recent green one.

S&P 500 Chart

Another week is behind. The stock market is doing what it supposed to do (in the meaning of my technical analysis results). The main U.S. indexes (Nasdaq 100, S&P 500 and DJI) followed the pattern defined in the "S&P 500" post on May 14, 2009 and in the "S&P 500 Analysis Follow Up" post on May 18, 2009. In particular, the indexes moved up - back to the May 6-8, 2009 highs, but did not break those levels. Then the indexes have dropped down again.

Now, the same traditional question that bother all trader: "Up or Down?" The answer on this question could be different depending on the personal trading style. If you are long-term trader and expect to stay in position for years then you could be looking for the answer in long-term charts, in the analysis of the economy and fundamentals. On the other hand if you are short-term ETFs (Exchange Traded Funds) trader could be looking for the answer in the technical analysis of the short-term index charts.

I am not here to discuss long-term analysis of the U.S. stock market, and I am not here to say where the market is going to be on the next trading day after the market open. I usually do one post a week where I am trying to cover technical analysis of the 60-day (hourly, 1 bar = 1 hour) index charts. Depending on the market volatility these charts are covering 2-5 days trends, and even I do not trade these charts (I’m short-term trader) I use them to see the general sentiment of the indexes and accordingly adjust my trading strategy.

Coming back to the traditional chart setting you may see in my blog, I may say that the majority of the technical indicators on the S&P 500 index are Bearish. The similar tendency could be noted on the Dow Jones Industrial index. The Nasdaq 100 is not as bearish as S&P 500 and DJI, yet, still negative. I would not make a statement that the indexes are strongly bearish. There are some bullish indicators could be seen as well.


From the chart above you may see that there is some dominance of the bearish sentiment. It is not a strong dominance: the currently bearish indicators have been bullish on Friday May 23 almost whole trading session and has become bearish only by the end of the day (you may see RSI and Stochastics started to move down again). One of the main reasons why I would shift the odds in a favor of bearish move is because of the volume surge at high price on May 20, 2009 in S&P 500 and DJI sectors. We do not see such high volume on the Nasdaq 100 index, however, we have not seen a high volume on the Nasdaq 100 during the price decline on May 13, 2009 neither.

Even my technical analysis is somewhat bearish at this moment, I would still keep my eye closely on charts since the indexes are close to the May 13, 15 and 21 lows (see lower blue line on the S&P 500 chart above which mark shorter-term sensitive level) to see if this line is going to be broken.

Again, my technical analysis is subjective and reflects my personal view on the market. I may only recommend doing your own personal analysis which would fit your personal trading style.

S&P 500 Chart

Did not post any charts lately. In my previous "Simple Technical Analysis" post on April 12, 2009 and "S&P 500 Volatility" post on April 5, 2009 I have mentioned about possibility of the indexes stacking at the levels where the market spend a lot of time in side move. I called those levels sensitive levels. Below I have set 2 charts of the S&P 500 index: 60-day (1 bar = 1 hour) and 1 year (1 bar = 1 day) to show what I wanted to tell.

From the 60-day chart (see first chart at the top) you may see that almost whole April the indexes basically were in the side move. The Dow (^DJI) index was the first index that started to move side-way, then a week later S&P 500index followed this pattern and the Nasdaq 100 index, as always, still could be considered in the up move. From the second 1-year chart (chart at the bottom) you may see that theS&P 500 index stopped its recovery at the same levels where it was in a side move in period from the middle of January to the middle of February 2009. The DJI index stuck somewhat lower and the Nasdaq 100 run over those levels.

Those traders who are more than a year on the market has to know that in the majority situation the indexes are flat in the resistance and the support as a rule is sharp. It could be easily explained by simple fact that greedy buying usually spread over the time while panic selling is always sudden and sharp. Because of that I believe many of technical analysts are asking: "we were in strong recovery… now we are flat… What is the next? Reverse down?"

The answer on this question, I think, lies in the technical analysis of the longer-term trend. If according to the longer-term analysis we are not any more in the recession I would assume that the odds are still on the side of the recovery and we may see some decline after this side-way move and then resumption of the recovery. We already had similar situation from the middle of June 2003 until the end of August 2003, when after strong recovery stock market has been flat for 2 months and then it went back into up-trend for the next 7 months. As I repeatedly mentioned, the stock market cannot move up all the time. During the recovery (or up-trend), time on time, stock market has to release itself from shorter-term overbought conditions. This is exactly what we have right now on my opinion.

Simple technical Analysis

I will be short today. Sorry, have a lot what to say - do not have a lot of time. As I mentioned before, I keep my blog running because it keeps me on the track and helps me to sort my thoughts. I have some knowledge and I share it for free. I wish I would have more time to do it...

Quick chart below would describe the main points of my technical analysis:

The Nasdaq 100 and DJI chart are similar to the chart above:

• My technical indicators applied to the 60-day  chart (hourly chart: 1bar = 1 hour) tell that the indexes are overbought on the hourly chart - we may see (we already started to see) a correctional down move;
• The same technical indicators applied to daily chart as well as to higher timeframes show that the indexes still oversold in the mid- and long-term;
• The bullish volume during the recent recovery (March 9-18, 2009) is very strong and can cause serious correction down, unless, March 6, 2009 bottom was the last drop in the recession and now we are in the long-term recovery. In this case this bullish volume could be ignored and could indicate long term change in the stock market sentiment as it was in period from March 12 to March 21 of 2003 - if somebody remember those days...

Recommendations:

• Do your own homework.
• I consider that it was good time to invest in pension and I think it is still not too late. Because of the 2008 crash that was caused by financial sector a lot of good stocks are underevaluated...
• Sdudy charts and monitor them...

S&P 500 Chart

For several weeks I have not been referring to any chart in my posts. I assumed that, whoever reads my blog may know from my previous posts charts setting I usually discuss and may simply open these charts. Now, I think, it is time for me to make chart snapshoot again. At the end, I believe it is easier to follow my posts and points of my technical analysis by looking at the chart (majority of people, including me, visually accept faster) than just simply reading the words.

Below you may see the S&P 500 60-day chart (1-bar = 1 hour). Some of traders call it 60-day chart because you may see 2 months of data on screen, some of traders cal it hourly charts because one bar covers one hour. I give both references for earthier understanding.


On the S&P 500 chart (Nasdaq 100 and DJI chart similar at this time) above you may see the standard set of my technical indicators for hourly charts. As you may see I do not rely on one indicator and even I consider volume as one of he most powerful tools I do not rely solely on it. Basically I have three groups of indicators on this chart: volume based, price based and advance/decline indicators. In this way I believe I cover all aspects of the trend analysis.

At this point of time my technical analysis of the hourly charts tells me that the market could be considered overbought in the short-term and we may expect to see some correctional movement down. By shortly summarizing the indicators above I may say that:

• High green MVO, RSI above 70, Stochastics above 80 - all of these suggest the indexes are overbought in short term (short-term because it is not high time-frame chart).
• Declining SBV, MACD and McClellan Oscillator point that the sentiment started shift toward the Bullish mood.
• RSI and Stochastics are still above 70 and 80 respectfully by still pointing to the Bullish sentiment.

From these three points above I may assume that we may expect to see a short-term correction down because the indexes could be considered overbought and we already started to see some changes in the sentiment from Bullish toward Bearish. However, I would like to see some flat market before. It is unusual to see sharp reverse down after strong up move. As a rule market (indexes) can have sharp reversal in support, yet, in resistance it is common to see several sessions of flat market. At the same time the SBV is still high and McClellan Oscillator with MACD did not crossed zero lines - these as well tells me that we may see some flat price movement before correction.

From the short-term analysis prospective I would recommend always consult higher timeframes (it is always a good trading strategy to analyze several timeframes). If you apply the same technical analysis to daily charts (1-year chart where 1bar = 1 day and 3-year chart where 1 bar = 3 days) you may see that in the longer term the market is still strongly oversold and longer-term sentiment is strongly Bullish. Because of that even I expect to see correction down I would not expect it to be very strong but rather a short-term move down within longer-term recovery. I even assume that because of the strongly oversold longer-term market (indexes) the shorter-term overbought levels could be ignored and there is a possibility of further up-move.

Overall (do not confuse you) I would say that my technical analysis suggest recovery in the longer-term, yet possibility a correction in the shorter-term.

Technical Analysis

Last Sunday in my "DJI Analysis" post I mentioned that the majority of my technical indicators were negative, yet with indication of strongly oversold market. As a result we witnessed further decline during the whole week.

By the end of the current week the technical analysis applied to the 60-day chart (1 bar = 1 hour) is more optimistic that it was a week ago. At least, we may see some indicators became bullish. By adding to it strongly oversold condition stock market is, I would consider that the odds are on the side of recovery. I think that starting from February 27, 2009 (biggest daily volume) everybody who was entering long position (buying) could be in profit soon. Yes, indexes have dropped about 10% down since then, yet, over the past year, in such volatile market, we saw indexes 10% recovery in 1-3 trading sessions.

Shortly, by taking look at my standard (see chart setting in may last week "DJI Analysis" post) set of indicators I may say that

• SBV points to the strongly oversold indexes, yet, neutral at this moment;
• MVO suggest strongly oversold indexes;
• Advance/decline oscillator become bullish, yet, it would be wrong to say it strongly bullish;
• MACD is Bullish;
• RSI and Stochastics moved above 30 and 20 levels respectfully by pointing to possibility of bullish trend;
• McClellan Oscillator is negative and points to higher odds of further decline.

Technical Analysis

Since I did not make any reference to the charts and technical indicators in my last "DJI Volume" post, I decided to make a short additional post.

I already mentioned in my previous post (a few hours ago) that now, I would not like to be on the place of those traders who are in short position, either it sold short stocks, or bought put options... I think it expresses my opinion very clear. This statement is based on the same technical indicators I always use and it mainly based on the huge volume surge seen on Friday in the DJI sector which on my opinion could mark another bottom and reversal.

In more details my technical analysis applied to the set of technical indicators on the 60-day chart (1 bar = 1 hour) tells me:
1. SBV started to advance - positive sign, yet it would be nice to see further advance as confirmation of recovery.
2. A lot of read SBV - suggests strongly oversold market
3. Big red MVO - points to strongly oversold market and extremely high panic selling which may lead to strong reversal.
4. MVO did not started to advance yet - means that we still have a lot of traders who sells in panic or who sell short in greed.
5. Advance/Decline Oscillator still declines - which reveals dominance of negative sentiments.
6. Advance/Decline shows a lot of red - suggests strongly oversold market.
7.MACD almost flat - more as a neutral sign.
8. Stochastics advanced above 20 after being below this level - positive sign that show that market is moving away from its low levels.
9. RSI advanced above 30 after being below this level - positive dynamic movement.
10. McClellan Oscillator is on up-side after crossing zero line - considered as positive signal.

Sorry for not showing a chart, I think you may always take a look at chart on marketvolume.com - chart setting could be seen on chart in my "DJI Chart" post (look for indicators setting in the chart legend).

Index Analysis

Four weeks ago in my DJI post (on 11/23/2008) I have posted the following chart with statement that the market has set new support. I would like to point again to the same DJI chart:

After 10/10 support (October 10, 2008 support level) the stock market and indexes did moved flat for a month until November 5, 2008 when they started to decline again. Now, it is a months after 11/21 support (support on November 20-21, 2008) and the logical question could be "should we expect to see reversal soon since there is a possibility that the stock market has stepped back from it's November's extremely oversold levels and accumulated some Bullish volume in December?"

We had first strong volume surges with  setting a support level on September 18, 2008, second on October 10, 2008 and the third one (most recent) on November 21, 2008. Each of this volume surges during the index declined pushed the indexes into oversold condition and every  time market become oversold stronger and stronger. If on September 18, 2008 the market reacted on high volume by strong one-day rally up (about 10% in a single session), then after 10/10 bottom (market was stronger oversold) the reaction on high bearish volume was expressed by 1-month up and flat move with about 16% recovery. The last time, on November 21, 2008, when after high volume surges the stock market has become oversold even stronger then on 10/10, the market respectfully reacted stronger - we have one month up move and indexes (S&P 500, Nasdaq 100 and DJI) with 22-25% recovery.

The market is still could be considered strongly oversold because of the high Bearish volume on 9/18, 10/10 and 11/21, yet, I would weighted it as longer-term oversold condition. Over the shorter term we see some overbought levels - should not be a surprise with more than 20% up over a month - which may push indexes and whole market down, not necessary into another crash, yet on my opinion we may see an attempt to retest 11/21 bottom.

I would never try to guess what is going to happened to the market in several month or in a year - this is a job for fundamental analysts. What I do: I track if there is possibility of trend changes in the shorter term and then I monitor these changes for a possibility of developing them into stronger recovery or stronger crash. Right now, I see that indexes (S&P 500, DJI and Nasdaq 100) signal a possibility of the move down (keep in mind that I could be wrong, I'm just an average trader). The S&P 500 chart below explains my worries (Nasdaq 100 and DJI charts have similar look):

Last week, in my S&P 500 Analysis post I mentioned that red MVO (volume surge during the price decline) may push the S&P 500 index up (we had up-move this week). Now, my main concern is that green MVO (volume surge during the price advance) may push the indexes down. The rest of technical indicators, including Stochastics, RSI (Relative Strength Index), SBV, McClellan Oscillator are bearish on this chart as well.

S&P 500 Analysis

I have stated in my last week "S&P 500 Chart" post about a possibility of breaking the November 28, 2008 highs and that this could mean that we will not see indexes moving down to November 21, 2008 lows soon. This week we saw the indexes (Nasdaq 100, S&P 500 and DJI) moved above these levels. After that the S&P 500 and DJI dropped back below the November 28th High, yet, the Nasdaq 100 index still stays above this level.

A week ago (read my previous week post) we had a short-term overbought market and three negative sessions during the past week confirmed it. Right now my technical analysis is more optimistic than a week ago. The current week decline released the indexes from the short-term oversold conditions, if not fully then at least partially. Red MVO and SBV on December 12, 2008 (see chart below) confirms that: red MVO indicates high volume activity (volume surge) during the price decline or "panic selling", red SBV indicates the Bearish volume accumulation (negative money flow).


Overall at this moment I see more Bullish signals than Bearish. Stochastics, MACD, RSI, SBV on my chart rising, VIX (volatility  index) declines - all of this in the favor of the up-move. The exception is McClellan Oscillator which declines and which is Bearish.

The market is still highly volatile. If a year ago 1-2% run in either direction was a big event, right now we consider it as quiet session. The highly volatile market require constant monitoring and I would not recommend rely on my weekly analysis simply because the sentiment in volatile markets changes sharply and only monitoring charts during trading hours may help spot the reversal points in time. I'm sorry, I cannot do any posting during the week - there is other stuff that has to be done.

S&P 500 Chart

Are you still hesitating that volume works? Read my "DJI Analysis" post a week ago and take a look where the indexes are no. There is one rule in volume based technical analysis that every trader suppose to know: "Do not play Short on high volume surge during the price drop". I'm not even taking about opening a long trade or analyzing volume to see where the trend reversal could be expected. This is the first rule. If you are in "short" and price goes down and you see big volume surge close the position. Yes, you may win less but you will not lose a lot on sudden and strong reversal.

I'm wondering what technical analysis with exception of volume based technical indicators pointed a week ago on the high possibility of strong reversal. News and fundamental analysis are negative all the time: refuse to bailout automakers, request for another $800 billions of "rescue package", growing unemployment, dropping consumer confidence... Try to find at least one positive factor.

The logical question could be put is "Could S&P 500 20% and DJI 18% run mean the this is the end of the Global Recession?". My answer is I do not know and technical analysis will not answer you where the Stock Market is going to be in 2-5 years. The science of technical analysis has been developed to analyze stock market trends and flow of the money (volume) in order to spot overbought and oversold condition which could could lead to the trend reversal as well as to define technical indicators that may confirm the reversal on its earliest stage. I do not believe in technical analysis for long-term trading, yet, I believe it could be used for mid- and short-term trading because these timeframes less affected by politics.

Any way, let's go back to our technical indicators to see what they forecast.


We can see some oversold levels on many indicators which is a result of strong up-move over that past week. You may see that SBV shows a lot of green, RSI and Stochastics are above 70 and 80 lines respectively, Advance/Decline Oscillator has a lot of green as well - all of these indicats overbought market at least in short term. However, even these indicators are overbought, only McClellan Oscillator is strongly Bearish - it crossed zero line. The rest of technical indicators still point to Bullish sentiment, which, however, could become Bearish any time. Yes, I see some indication of possible move down and I' would closely monitor charts over the next couple of trading session especially on intraday levels to see if the market start dropping towards the November's bottom. Even If we see that move down I would not expect to be it very deep at this point of time. I would like to see some Positive (green) MVO (high volume during the price up-move) that would indicate some greedy buying before.

If I believe that the market is still Bullish and it still may go further up, yet, there is growing possibility of having at least a correctional move down, that means that especially now I would consider some trading strategy that would protect achived profit.

DJI Analysis

Another bailout - another crash? On my opinion the indexes moved down under the high Bullish volume (greedy buying) seen on October 29-30, 2008. Strong rally on October 28 inspired investors and they started to buy (see green MVO on the chart below). Yet, not for a long. Many investors are still desperate and on November 20-21, 2008, after the indexes dropped below the 10/10 (October 10) support, wee see explosion of the extreme panic selling (see the same chart below). Most likely this panic selling did set new support level.



I always point to the importance of understanding volume surges. The main rule that is usually forgotten by many traders is that volume is always two side transaction and when you see volume = 100 shares it means that somebody sell 100 shares and somebody bought these 100 shares. When we have volume surge and volume = 2.6B (daily DJI volume on 11/21/2008) that mean that some investors decided to buy 2.6B shares from those who were selling them in panic. No doubt that this extremely high volume indicates that now panic sellers have 2.6B shares less to sell and as a result there are less sellers on the market to push it further down.

How many of investors in panic is still on the market - I do not know. There still could be a lot of traders willing to sell stocks they have in panic or sell stocks short in greed. I know one thing - by tracking volume I may clearly see that big money bags (big institutional investors) were buying on September 15-19, they were buying on October 8-17 and they are buying now. The huge volume surges in these periods means huge number of shares moved from one group of investors to others. Only long-term investors have such big money to buy in such huge volumes. The big investors use simple trading strategy - each time they see new bottom, new low bargain price - they are buying. The same that everybody suppose to do with IRA and 401k accounts - each time you see huge volume surge and new low - invest money into your pension - follow big money. If you do not believe me look at the news and check what Arabian and American billionaires are doing...

I think that November 20-21 has market the new support level which is confirmed by high volume. I do not expect the stock-market be below this level soon. It is not necessary the end of the global recession, yet the huge volume seen over the last couple has to be processed and it take's time.

It was about my view on long-term investments and long-term technical analysis. About shorter-term I may say that my technical analysis at the current moment is positive:

- SBV is moving up by showing the buyers coming to the market;
- MVO shows high volume surges during the indexes decline;
- Advance/Decline Oscillator show heavily oversold market and moving up by indicating the changes in the sentiment;
- MACD, Stochastics and RSI are mowing up which is positive sign as well;
- McClellan Oscillator is neutral by moving flat around center zero line.

All my points could be seen on the DJI chart above. The S&P 500 chart has the same picture and results of the S&P 500 technical analysis is basically the same. The Nasdaq 100 technical analysis show stronger oversold levels. 10/10 (October 10) low has been broken a few days earlier and we may expect to see stronger up move on this index.

Again, this is my technical analysis and I could be wrong. I may recommend only one thing - do your own analysis.