Money Flow

I mentioned a week ago in the "Advance/Decline" post on February 22, 2010 "... when you take a look at lower time-frames, you may notice that many indicators are overbought in short-term, by signalizing a possibility of some retracement, at least in a short-term. The stock market (majority of indexes) right now is in the range of its side-way trading where it was in period from November 10, 2009 until December 18, 2009 This is another factor that may suggest a possibility of staking in this range for a while...". In the past week we have seen exactly this scenario when the indexes (S&P 500, DJI and Nasdaq 100) stuck in side-way trading. One day we saw indexes dropping down and the next day the strong recovery moved them back to the November-December 2009 highs. Then, we had another day of strong decline followed by another strong recovery. At the end of the week the indexes are almost back at the November-December 2009 highs

Now, after a week of volatile trading, I think a correct question for technical analysis would be to ask if the longer-term indicators (that were bullish last week) are still bullish enough to push the indexes higher toward the next possible "pit-stop". Another question regarding shorter-term technical indicators would be to check if those ones that were overbought in short-term last week are still overbought.

From technical analysis prospective, by taking a look at the longer-term index charts (1- and 2-year S&P 500, Nasdaq 100 and DJI charts) I would say the same I said a week ago. The January's decline was pretty strong and during that decline we had very strong bearish volume surges and extremely negative advance/decline readings. If you check money flow (Chaikin Money Flow, Money Flow Index or SBV) during that decline you may see that the stock market was strongly oversold during that time and accumulated oversold power still has not been released completely. Because of that, I would continue assuming that the odds are still good for further recovery towards January, 2010 highs.

Taking a look at shorter time-frame charts, I would not say that the technical indicators are overbought as they were overbought a week ago. Majority of technical indicators on the 60-day chart are slightly bullish or neutral by suggesting possibility from flat to rising markets. However, you should remember that shorter-term outlook may change any time during a trading session on any day. Furthermore, I would recommend monitoring the shorter-term charts for changes in a sentiment during the trading hours.

Overall, I would say that results of my technical analysis are still Bullish and I see good odds of market moving higher. On the other hand, there is a possibility of volatile side-way trading in the same range the stock market is now. In November-December 2009 the indexes (NASDAQ 100, DJI and S&P 500) have been in side-way action for a month. Now, they have being moving side-way at the same levels for a week only. So, there are still some odds we may see further side-way move.

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.

Short Analysis

I have missed my Sunday post, therefore I'm writing during the week. Coming back to my previous "S&P 500 Technical Analysis" post on September 20, 2009 I may say that since then we have had the market (Nasdaq 100, S&P 500 and DJI indexes) moved as was predicted: sideway trading first (from September 21 until noon on September 23) and then a correction down.

Looking at the price movement it looks like the correction down is coming to the end – the indexes are moving up from their September 25 lows. However, taking a look at technical indicators I do not think that many traders see positive and promising signals. Right now my technical analysis on hourly charts shows following:

1. SBV (Selling Buying Volume) – bullish on the Nasdaq 100 and DJI and neutral on the S&P 500;
2. MVO (MarketVolume Oscillator) – the same as SBV bullish on the Nasdaq 100 and DJI and neutral on the S&P 500;
3. Advance/Decline Oscillator could be considered Bearish, yet close to the oversold levels on all main indexes (Nasdaq 100, S&P 500 and DJI);
4. MACD is neutral by moving basically sideway;
5. RSI and Stochastics reading are mixed, yet, I would say that they are more Bearish than Bullish;
6. McClellan Oscillator started to decline, yet, it is still positive.

As you may see the technical analysis is mixed at this moment and may suggest recovery from the correction as well as further developing of a deeper correction. The main point that makes me worry, despite positive volume signals, is that volatility is increasing. You may see that ATR (Average True Range) and VIX index are climbing up and this is a bearish sign.

As a rule in case like we have now (mixed technical analysis results) a good decision could be waiting for more clear signals. Right now the indexes clearly defined the resistance line: for S&P 500 and DJI indexes high levels on September 17, 18, 22 and 23 and for Nasdaq 100 high on September 23. At the same time we may draw some support line that would go through September 25’s low. Furthermore, conservative way could be waiting for indexes breaking one of these lines and checking the technical analysis at that point.

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.

Technical Analysis

The recent week could be considered completely flat with the exception of sharp up-move at the market open on Thursday July 30, 2009. I have already pointed to the short-term overbought market in my previous week's "S&P 500 Rally Up" post. If not this Thursday's sharp up move then this week's sideway trading would look like very nice resistance and now all technical indicators would point to the higher odds of correction down. I reality the picture is a little bit different. The S&P 500 technical analysis of hourly chart (1 bar = 1 hour) shows following:

- The SBV Oscillator (bar period 20) is bearish - it moves down slowly. In addition big bullish volume accumulation from July 13, 2009 may possibly push the indices down.

- The MVO(5,25,3) is Bearish as well. We may see a row of Bullish volume surges with the most recent on July 30, 2009. All these volume surges are result of the waves of greedy buying. The strongest one on July 23, 2009 has halted advance and directed the Nasdaq 100, S&P 500 and Dow Jones Industrial sideway.

- The Advance Decline Oscillator with bar period 12 is close to become bearish. It started to decline, yet it still at high positive level and still could be considered as bullish.

- MACD(15,30,10) is bearish. It declines and it just crossed zero line and went into negative territory.

- RSI(17) dropped below 70, however, it is almost flat and still above 50. So, I would say the Relative Strength Index is slightly bullish.

- Stochastics (17) is slightly bearish. It declines, it moved below 80 yet it is still above 50.

- McClellan Oscillator with bar period 19 and 39 is bullish. It advances above zero line and is still in up-move.

The DJI technical analysis of the same indicators will give you the same result. The Nasdaq 100 hourly chart is slightly more bearish then the S&P 500 and DJI charts.

In conclusion I would say that the main U.S. indexes are overbought over the short-term. We may see some bearish signals. However not all technical indicators are in favor down move. It could be recommended to monitor chart closely next week. Should Advance/Decline Oscillator, RSI and Stochastics decline further it would increase the odds of possible correction down.

I’m sorry I have not provided chart snapshot today. I'll try to do it in my next post.

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)

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

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

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).

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.

S&P 500

In my previous "DJI Chart" post on November 2, 2008 (a week ago) I have described the possibility of the slide. The market was overbought in short term at that time and during this week we shad two session of the slide (November 5-6). I think some trader are worried if this slide is going to continue to the 10/10 (October 10) lows.

I would repeat myself that over the longer term I'm still bullish and this slide did not change any of the technical indicators I use on the higher-timeframes (1-2 years charts) - all of them are still bullish and all of them point to the higher odds of the further recovery. Yet, the question about the retesting of the 10/10 lows is not about longer term. I would rather consider it as a short-term question.

In short-term, the technical analysis applied to the 60-day chart (1 bar = 1 hour) is more bullish than bearish and I would expect to see short-term up move within the next few sessions. If a week ago I saw the short-term overbought indexes, today I see short-term oversold market.


The technical analysis applied to the S&P 500 index above is the same as it would be applied to the Nasdaq 100 and Dow Jones Industrials indexes. At the current moment all three main indexes show similar sentiment:

a) We see Bearish volume surge - red MVO which already equal to zero - This Bearish volume may push the indexes up;

b) Advance/Decline oscillator is rising and is above to cross center line. This suggest that investors are moving towards advancing stocks - they are buying;

c) MACD is moving up which  is indication of Bullish trend;

d) RSI and Stochastics moved above 30 and 20 levels respectively which is bullish sign as well;

e) McClellan oscillator started to move up which is a good sign for up-move, yet it still below zero line which indicate bearish market;

f) SBV show small advance, yet, this advance is too small to consider this technical indicator bullish.

Overall, in short-term I would expect an up-move rather then further drop towards the 10/10 lows. Again, the market is still very dynamic and volatile and today's bullish sentiment can reverse very fast. Because of that I would recommend monitoring charts every day.

S&P 500 Chart

A few numbers:

• DOW is more than 4,500 points down from its October 2007 high and only 2,100 points above March 2003 low;
• S&P 500 is more than 500 points down from its October 2007 high and less than 300 points above March 2003 low;
• Nasdaq 100 is mote than 800 points down from its October 2007 high and about 500 points above February-March 2003 low;

Pretty scary... Yet, I'm optimistic. It's going to be up and taking look at volume surges I saw during this crash I would expect to see a recovery to the August 2008 levels at least. The question is when it will go up. The answer is "sooner or later, but not during this week to that levels for sure" (smile). But seriously, I do not expect the indexes to recover to that levels even by the end of this month, on the other hand anything could happened and that is why it is good monitor the market on daily basis. I believe many traders my find this time good for long-term pension investments by using 401k to buy some stocks on monthly basis (using dollar cost averaging).

For short term speculative investments I may suggest only one - protect your profit. As soon as your position is in profit it is good to have trailing stop set. If you are today in winning position, in such volatile market without this profit protection you can be in losing position tomorrow very fast...

So, what my technical analysis tells me.


This week I decided to use the same chart explanation table I used in my "Nasdaq 100" post on September 6, 2008

	Nasdaq 100	S&P 500	DJI
SBV	Bullish - Moving up
MVO	A lot of red MVO and absence of green MVO suggest highly oversold market
	Bearish - MVO still negative. only when it becomes zero we may say that the volume went down and panic selling is behind		Bullish - MVO=0 and the last MVO was negative
AD Osc.	Bearish - Moving Down
MACD	Bullish - Moving up
RSI	Bullish - Just moved above 30
Stochastics	Bullish - Just crossed 20
McClellan	Bearish - Negative, moving sideway or down
VIX	VIX (Volatility index) is above 50 indicates extremely oversold levels. Yet, it does not move down and could indicate bearish sentiment

Keep in mind that technical analysis based on the 60-day chart cannot be used for mid- or long-term trend. The usual trend that could be expected from the 60-day chart analysis would not last longer than 5-10 days in the normal market. In the high volatile market we have I would not bet beyond 1-2 days from now. Again in such volatile period it is very important to monitor charts constantly - the sentiment changes are very fast and rapid.

DJI - Stock Market Crash

Made on request of www.MarketVolume.com - the only source of volume and advance decline charts for indexes and exchanges.

To take closer look at the current sentiment on the stock market as well as to define the general market tendency I decided to take closer look at higher-time frame chart in particular on 2-year DJI chart.

Chart #1: DJI index. 2-year chart. 1 bar = 2 days. SBV(10), MVO(5,25,3).


From the chart above we may see the extremely high volume surges during the recent crash. Starting from the middle of September 2008 we had records in daily trading volume. The history of the stock market did not see such extremely huge panic selling ever before. This high volume tell us that the extremely huge number of investors left the market, yet we have some group of other investors who was buying in that period at small bargain price - some traders decided to satisfy demands of those who were leaving the stock market in panic. That is why we had this high volume (volume is two side transaction - for each seller there is a buyer).

The average trading volume on NYSE in 2007 was about 3.1 billion shares per day. The average NYSE trading volume in period from the middle of September 2007 until now is about 7 billion shares per day. Starting from September 8, 2008 more than 130 billion shares were traded. Even by assuming that the average price of a stock on NYSE is only $10 per share it will give us more the 1.3 trillion of negative money flow (out of the market).

As a rule, after a huge amount of money is taken out of the market (when SBV declines) we see a rebound (investors start to invest again). From the chart above you may see a rebound each time after SBV decline in August 2007, November 2007, January 2008 and July 2008. Each time when SBV start to advance after being at low negative levels we see that it indicates positive money flow (investors coming back). Sooner or later the investor that left the market in the result of the recent crash will come back and start to inject funds into the stocks. It could be tomorrow, it could be in a week or even a month. When it happened depends on the current political and economical factors affecting the stock market and how fast the investor could be reassured in the coming stability.

At the current moment the declining SBV on 2-year chart show that the Bearish sentiment is dominant among the mid- and long-term investors. Yet, as soon as we start to see advancing SBV on this chart we may assume that the long- and mid-term traders start coming back which may lead the market up and which could be an indication of the rebound. Taking into the account that we had extremely high volume surges during the recent crash we may expect very strong up-trend.

To better anticipate a possibility of the trend reversal we may always consult lower time-frame by applying the same technical indicators to 60-day chart in our case.

Chart #2: DJI index. 60-day chart. 1 bar = 1 hour. SBV(20), MVO(5,25,3).


From the 60-day DJI chart (see chart above) we may see that the critical moment in the recent crash happened in the period from September 15 until September 19, 2008. Exactly in this period we saw the biggest volume surges and also in this period the biggest transfer of the shares occurred. When we see the big number of shares (big volume) is changing hands during the crash it tell us that the number of panic sellers is dramatically reduced (their demands are satisfied – they sold) which may lead to the shift in the supply/demands balance. After that starting from the September 20, 2008 we still see negative money flow, yet the trading volume is dropping and the number of investors leaving the marked reduces (the red SBV areas become smaller and smaller). That reveals that we see slow change in the sentiment on the stock market and we could be in the beginning of the new uptrend.

In Summary: Overall we believe that we are in the begging of the strong reversal which was defined in the middle of the September by huge volume (extremely panic selling) that pushed the stock market into strongly oversold levels. The exact day when the big long- and mid-term investors start to come back depends on many factors, yet we already see a begging of this process on the 60-day chart. From the more conservative point of volume based
technical analysis it could be recommended to wait for a confirmation on the 2-year chart when SBV(10) starts to advance.

DJI

Ok, as I mentioned in my last "Index Volume" post on September 16, 2008 we had it - sharp and strong recovery. Just in 1.5 trading session (from noon of September 18, 2008) the Dow Jones Industrials run up about 1000 points!!! I expected to see the indexes at September 12 levels and they (DJI, Nasdaq 100, S&P 500) are there.  I've already pointed to the meaning of the huge volume during the price slide in my "DJI Volume" with bringing to attention (in the "S&P 500" post) similar occurrences of the high volume surges in the past and the price reaction on such huge number of transaction.

I do not think there were a lot of traders who was able to open a long position over the last 1.5 trading session. I believe many traders under the media negative pressure were still trying to play short by using this recovery as a possibility to open a short position and then desperately were monitoring and thinking why the market does not go down with all these bad news... I've already mentioned my "friendly" feeling to the media "I do not trust them!!!" - They always look right by explaining the stock market after the fact. When oil goes up and the DJI drops they tell us that the investors are disappointed by high oil prices and on the next day when oil drops and you expect that investors should be happy you see another day of the DJI slide and guess what, again media is right by explaining you that investors were disappointed by bad situation in financial sector...

As I already said I'm ready to pay for a year of service that provides the volume for indexes in order to have just one such beautiful moment. With volume indicators I have fun by watching the news and their explanation of the market. Stock market is not as it was 10-20 years ago. Look at the NYSE volume 10 years ago - we have now much more speculators in the market and it cannot be ignored... 

The market is always described by price and volume and using technical analysis based on the price indicators only I consider as watching a TV with half of the screen covered. The same with volume I believe it's wrong to base the technical analysis solely on volume. There should always be at least one price based and one volume based technical indicator in any trading strategy, which one should be main and which one confirming it's another point. Only analysis of price movement together with volume flow may give the clear picture of the stock market processes.

So, we see the DJI, Nasdaq 100, S&P 500 and other indexes above the September 12th levels and the question is now "Will it run further to the August 28 and August 11, 2008 highs?"


By looking at the chart above I may say that we have great deal of the volume accumulated during the recent stock market crash, I believe that the market is still heavily oversold and it was not released from this oversold stage over 2 nights (since Thursday) it still has power to run up and so far all the technical indicators I use are positive:

• SBV is on its way up
• MVO show big oversold power
• Advance-Decline is rising
• RSI is rising to the 70
• Stochastics is above 80
• McClellan Oscillator is rising

Mainly based on the MVO I would assume that the odds are very good to see the indexes at August 11, 2008 highs.

Nasdaq 100

In my last "Nasdaq 100 Chart" post I have mentioned about the desire of the Nasdaq 100 index to compensate in recent decline what it missed in June-July 2008 decline. I've already emphasized in July (see "DJI" post from 07/20/2008) that the Nasdaq sector was not as oversold as S&P 500 and DJI indexes at that time. It looks like now the Nasdaq stocks decided to catch in the recent decline what was misses in July. While the S&P 500 and DJI indexes were ready for the recovery the Nasdaq 100 index was still behind. However, now (over the last week) we see strong volume surges in the Nasdaq sector. The volume during the decline indicates panic selling and high volume surges during decline indicate that some traders decided to satisfy the demands of the panic sellers by buying huge amount of shares. Keep in mind that Nasdaq 100 index has been in decline since August 16, 2008 while the S&P 500 and DJI only since September 2, 2008 (only 4 trading session).

Now After this week I see very good chances for a recovery. By looking at the 1-year index charts I may assume that the Nasdaq 100 index has become oversold as well and now all three indexes have power to move up. Yet, I could be wrong and I do not recommend following conclusions of my technical analysis. Each trader has to do his/her own homework...

Coming back to my favorite 60-day chart, I see good odds of bullish market, at least at the beginning of the coming week (for the rest of the week I would analyze the same chart during the next week).

I have selected the Nasdaq 100 chart again since (on my opinion) this index was the major engine behind the recent decline. The S&P 500 and DJI indexes technical indicators look similar. This week I decided to set a table of these three indexes which summarizes used by me technical indicators and results of my technical analysis:

	Nasdaq 100	S&P 500	DJI
SBV	Bullish - Moving up
MVO	Bullish -Big volume surges. Now, MV=0 and this is a positive sign as well	Bullish - Big volume yet not as big as in the Nasdaq 100 sector
AD Osc.	Somewhat Bullish - Moving up, yet still at low negative levels
MACD	Somewhat Bullish - Moving up, yet still at low negative levels
RSI	Bearish - Still below 30	Bullish - Just moved above 30
Stochastics	Bullish - Crossed 20 and moving up
McClellan	Somewhat Bullish - Negative and far from center line

Nasdaq 100 chart

I mentioned in my previous "Panic Selling..." post that the Nasdaq 100 index was not as oversold as S&P 500 and DJI indexes during the recent crash in July 2008 by pointing on some bearish sentiment in the Nasdaq 100 sector while the DJI and S&P were more optimistic. Over the last two session we continued to see the power pressure of the Nasdaq companies which continued to push the stock market down. The question is for how long.

The Nasdaq 100 index is most dramatic over the past couple of session and that is why I brought out the Nasdaq 100 60-day chart to see what is the tendency in the changes of this index sentiment changes. The same as before the S&P 500 is not as bearish as the Nasdaq 100 and the DOW(30), I would say, even somewhat bullish. Despite the negative Nasdaq pressure the Dow Jones managed to end today's session even with shallow gain.


Summarizing the Nasdaq 100 technical indicators on the chart above I may say that

• SBV is still bearish - moving down (neutral on S&P 500 and positive on the DJI);
• We see high volume surge during the last two trading session slide (high negative MVO) which is a good sign for possibility of the coming reversal. Yet MVO is still below zero line (the same on the S&P and DOW);
• Advance/decline oscillator is more neutral by moving close to the central line (similar on the S&P and DOW);
• MACD started to move up which would favor the reversal (S&P 500 and DJI MACD bullish as well);
• RSI is at 30. Should it drop below it would point to the possibility of the further slide. Should it move up it would indicate bullish sentiment (S&P and DOW RSI are somewhat bullish);
• Stochastics is below 20 - bearish sign (S&P and DOW Stochastics are bullish);
• McClellan Oscillator reversed and started to move up, yet it still below zero line.

So, I see some negative signs in the Nasdaq 100 index. Yet, at the same time I see some technical indicators started to change from bearish into neutral and from bearish into bullish, which could point that we could be close to the bottom. It looks like the S&P and DJI are ready to go up and they wait for the Nasdaq companies only.

DJI Chart

Nice week. From y last "S&P 500" post you may see that I expected some correction and we had it. Yet, the longer-term up-trend pushed the stock market higher by the end of the week. (refer to my 1-year technical analysis in my "New Highs/Lows" post on August 12, 2008 and my "DJI" post on July 20, 2008).

My outlook over the longer-term stays unchanged. The same as before I believe that the high volume surges in June-July 2008 have power to push the Nasdaq 100, S&P 500 and DJI indexes and the whole market much higher.

With shorter-term, I only may give one advice to monitor charts on the daily basis. For those who analyze charts, the Monday-Tuesday slide should not be a surprise, as well as Thursday-Friday recovery was clearly defined by the technical indicators. If today my 60-day technical analysis points to the higher odds of the further recovery (see chart below), it does not mean the the same technical indicators will be bullish the whole next week. The technical indicators on the 60-day chart can turn from bullish into bearish any time during the week. That's why I always say "do not trust my judgment, do your homework yourself and do it on regular basis. You skip it, you lose it. If you skip and did not lose that mean that you were lucky and next time you may lose even more...".

Ok, back to the 60-day chart I may say that all three indexes S&P 500, Dow(30) and Nasdaq 100 have almost similar sentiment on all technical indicators:

• SBV - Bullish - The SBV is moving up;
• MVO - Bullish - the last high volume surge is red - during the price decline;
• Advance-Decline Issues Oscillator - Bullish - The AD Oscillator is on up-side;
• RSI and Stochastics - Bullish - The RSI and Stochastics are above70 and 80 levels respectively;
• MACD- Bullish - The MACD is advancing;
• McClellan Oscillator - Bullish - The McClellan Oscillator is on its way up.

Chart 1: DJI 60-day chart with elements of technical analysis

S&P 500

In my last "New Highs/Lows" post on August 12, 2008 I have reviewed my longer term outlook based on technical analysis of 1-year index charts with mentioning that over the shorter term I see oversold levels on Nasdaq 100, S&P 500 and DJI indexes - we saw a dive on the market on August 13 with some recovery by the end of the week.

In majority cases the reversal point after down trend (support) is very sharp and sudden. In opposite a reversal point after uptrend (resistance) is not as volatile and as a rule spread over the time when we may see almost flat market. We had up-move after August 1st and then some decline with Flat market after August 11th.  Now, my shorter-term main question is "Does the market released the oversold pressure over the last week and now it's ready for go further up? or the stock market levelled the indexes before deeper slide?". Keep in mind that I'm referring to the shorter-term trends. My longer-term technical analysis is basically unchanged and I still in Bullish mood and believe in higher odds to see the indexes higher than they are today (refer to my 1-year technical analysis in my "New Highs/Lows" post on August 12, 2008 and my "DJI" post on July 20, 2008).

Chart 1: 60-day S&P 500 Chart technical indicators

From the chart above I may see that my S&P 500 technical indicators are bullish, yet, some of them close to become bearish:

• SBV - Bullish - The SBV moves up pointing to the positive sentiment;
• MVO - Bearish - The MVO shows high volume surges during the recovery in the period from July 22, 2008. Each time after such volume surge we saw small correction, however, we did not see high volume surges during these corrections (absence of red MVO). From one side it tells us that high volume surge during the up-move is needed to push the S&P 500 index down, yet much smaller volume is needed to reverse the S&P 500 index back into up-trend and this fact confirms my longer term outlook. Yet these volume surges are making an input into moving the index into oversold levels which may push the market into stronger correction;
• Advance-Decline Issues Oscillator - Bullish/Bearish - The AD Oscillator is at high positive level, yet it started to move down by pointing to the possible beginning of the changes in the sentiment towards the declining stocks;
• RSI and Stochastics - Neutral - The RSI and Stochastics are on the edge of 70 and 80 levels respectively. Should they start to move down it may point to Bearish trend. Should they go back above their critical lines it would point to the possibility of further Bullish trend;
• MACD- Neutral - The MACD is flat and basically neutral;
• McClellan Oscillator - Bullish - The McClellan Oscillator is on its way up and is Bullish at this point of time.

The DJI 60-day chart looks similar to the S&P 500 chart above. Yet, the Nasdaq 100 60-day technical analysis is more negative by pointing to the higher odds of a possible slide into correction. For the Nasdaq 100:

• SBV - Bearish - The SBV moves down;
• MVO - Bearish - The MVO shows absence of red (high volume during the price drop) and shows a lot of green (high volume during the price rise);
• Advance-Decline Issues Oscillator - Bearish - The AD Oscillator is on its way down;
• RSI and Stochastics - Bearish - The RSI and Stochastics dropped below 70 and 80 levels respectively;
• MACD- Bearish - The MACD is on the down side;
• McClellan Oscillator - Bullish - The McClellan Oscillator is on its way up, yet it is still below zero line.

Overall, by analyzing 60-day technical indicator I may say that I see the possibility of the correction down, yet, at the same time I see the possibility of the scenario when the market can ignore the Nasdaq 100 bearish indicators and move up under the pressure of the Bullish parent longer-term trend. I would say that for me, the shorter term trend is undefined at the current moment and one of the conservative strategies in such situation could be staying in cash until I see the Nasdaq 100 become bullish or the S&P 500 and DJI more bearish.

Short-term Technical Analysis

Last week in my "S&P 500 post" based on the 60-day technical analysis I have mentioned that the stock market has potential for further slide, yet, not a deep one. The market continued to drop on Monday July 28, 2008 and on Tuesday it is already started its recovery movement.

Now, again by looking at the 60-day chart I am not very optimistic. Again the same as on the last week I may see that over the shorter term I see more overbought indicators that may push the market lower to retest the July 15, 2008 lows. All three major US indices - DJI, Nasdaq 100 and S&P 500 - the 60-day index charts show me that

• SBV oscillator declines,
• McClellan Oscillator declines,
• Advance-decline oscillator declines
• we have high positive MVO on July 23rd and July 30th with absence of the Negative MVO
• Stochastics is below 20

On the other hand I see some positive movement in the MACD and RSI started to advance.

In summary, over the shorter term, the high positive MVO shows that there is a possibility of a slide and now overbought levels are stronger than we had last week.

However, the longer-term charts (1-year charts) still indicate high oversold levels for the S&P 500 and DOW(30) indexes (the Nasdaq 100 companies are not as oversold as the rest of the market). The only negative sign on this chart I see is the fact that the SBV oscillator started to decline.

So, what it is going to be? Will the market slide based on the 60-day technical analysis, or will it ignore shorter term technical indicators and will run higher based on the 1-year oversold levels?

I would put it in the following form: yes, I think the during June - July stock market crash we saw very strong volume surges which indicate extremely panic selling and which tell me that in that period some part of investor (who has enough funds to satisfy the panic selling demands during the crash) were buying. Based on this, I would assume that even if the market slide down towards the July lows, it still has a potential to be higher than it  is today simply because those traders who wanted to sell already sold in panic during the June - July. The ideal picture that I would like to see is a slide with the high volume (low negative MVO) and then strong reversal. Yet, I still consider a possibility that shorter term oversold levels could be ignored and the market can move higher.

I'm sorry, I do not present a chart today. You may check the chart by yourself. As a reference, you may see the 60-day chart setting I use in my last week post and my 1-year chart settings in my DJI post.

Charts Technical Analysis

Another, crazy week is behind. We saw strong slides and we saw strong recoveries. The feeling that the stock market is manipulated was following me the whole week - the indexes declined even when the majority of stocks were in advance - on one day we had a news on Government attempt to give a help to financial institution on the next day we hear that these institution do not need such help. How many else surprises wait for us?

Overall, despite all negative pressure, all negative news the Nasdaq 100 index slide down only 5 points (0.3%) over the week. Keep in mind that the Nasdaq 100 index is a basket of 100 non financial companies and as a result less affected by the financial sector than the S&P 500 index and DJI index. As a result of the week the DOW index lost 188 points (1.7%) and the S&P 500 index lost 23 points (1.9%).

The question is what will the next week bring to us? Will the financial companies be able to push the stock market deeper down despite the heavily oversold stage? We saw such attempts during this week, yet we saw that the rest non financial part of the stock market tried to move the market up (we witnessed a few attempts of strong recoveries).

Last week (see my previous "Stock Market Crash" post), based on the technical analysis of the 60-day chart I have made an assumption about a possibility of the strong recovery. Yet, the market is still down. Intraday market crashes, when the Nasdaq 100 index dropped for 3% (on Friday July 10), made traders to believe that the market was going to crush even more, and I think not a lot of traders accepted the same strong recovery later on the same day as a sign of the oversold market. I think that majority of traders still believe that the market will go further down and they do not dream even about a small recovery. Maybe they are right, maybe the stock market will be lower, yet I do not think that it’s going to be "tomorrow". As I mentioned before, I see the extremely high oversold levels and on my opinion we are on an edge of a strong recovery. Even if the market tends to be lower, before, I believe it has to release some oversold power in a recovery movement.

If we compare the October 2007 – January 2008 stock market crash, with current May - July 2008 down trend we will see different price behaviors. If during the Oct-Jan crash when the indexes dropped for 2% then in majority cases they continued to drop even further. However, during the current down trend very often we witness the scenario when the indexes dropped down for 2-3% and then they moved up in strong recovery within a single session (especially over the last two weeks). It tells me that the market is driven down by a few negative companies (like Fannie and Freddie) while the rest of the market tries to recover from the heavily oversold levels. That is why I have put a question above for how long the financial companies are able to push the stock market deeper down despite the heavily oversold stage.

In order to review my position about the current market, this week, I decided to take a look at yearly index charts to see the longer term tendency of the stock market.

Chart #1: Dow Jones Industrial Index (DJI) 1 year chart - SBV(10), MACD(20,40,20), Stochastics(20,2), MVO(5,25,3)



Chart #2: S&P 500 Index 1 year chart - SBV(10), MACD(20,40,20), Stochastics(20,2), MVO(5,25,3)
 

Chart #2: Nasdaq 100 Index 1 year chart - SBV(10), MACD(20,40,20), Stochastics(20,2), MVO(5,25,3)


Personally, looking at technical analysis of 1-year chart I would consider it risky to play short at this point of time.