S&P 500 Chart

Another mixed week. The S&P 500 and DJI indexes moved higher while the Nasdaq 100 moved in side-way trend in which this index has been since September 24, 2010 (right now only a few points higher). The S&P 500 an DJI indexes were mostly traded side-way (since September 24 as well) with exception of the strong rally on October 5, 2010. Currently, the Nasdaq 100 index moves at its high levels seen in April 2010. The S&P 500 and DJI indexes are still 2-3% below their April's highs.

Below I have posted daily chart (1 bar = 1 hour) of the S&P 500 index with plotted Nasdaq 100 index (orange line).

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

The technical analysis on the chart above is applied to the S&P 500 index. The DJI daily chart would give quite similar picture. The Nasdaq 100 daily chart would be slightly different , with a little bit more bearish sentiment.

By summarizing the indicators above I may say that the longer-term positive divergence on the SBV and advance/decline oscillator is a good sign from the longer-term prospective. However, there are several negative signals at the current moment:

 - the SBV is still at high positive levels and is moving sideway. Even bullish volume accumulation could be considered quite strong and would indicate oversold index's condition, the Money Flow is still positive on the S&P 500 and DJI (not on the Nasdaq 100). Until we have positive money flow there are always will be good odds of up-move

 - Advance/decline volume and issues ratios and McClellan Oscillator are moving sideway after being at high levels. This suggests that if in September we had traders buying advancing stocks then, right now, there are not as many traders focused on the positive stocks as before. The number of traders focused on the declining stocks is about the same as the number of traders that are trading rising stocks. This shift from trading positive stocks suggest that many traders switch into bearish mood and if this tendency continue we may see more traders in bearish mood.

- We have a signal on the MVO. This suggests an increase in bullish volume (bullish volume surge). As a rule such increase in volume during price advance may lead to the shift in supply demand balance (when power of buyers become existed) with further reversal down. However, if you scroll the history you will see that usually reversal occurs when MVO returns to zero.

- The biggest concern on my view is an increase in volatility. The volatility is up since its low readings in the middle of September 2010. This is not normal. I have not see a lot of periods in the history when indexes moved up on rising volatility. The volatility is not too big to be considered strongly bearish, however the fact that is up from its low readings suggests nervous and uncertain trading, which is usually seen during down-moves.

Overall, I would say the the indexes could be considered predisposed to move down and we already may see some bearish signals. Which is logical when the indexes are at their Aprils highs. After a month of positive trading we may expect quite strong reversal. However, until wee see some negative money flow it could be too risky to play on it. If correction down meant to bee strong then there is no need to play at the top. More conservative approach would be wait for conformational signals and ply confirmed trend.

S&P 500 Financial

Last week in the "Volatile Markets" report (on August 15, 2010) I stated: "I would say that the odds of the further decline are higher. However, taking into account volume surges and low advance/decline reading on August 11, the one who is in short may consider setting a stop loss to protect a profit already earned since the time when August 6’s lows were broken.... the volatility level is still high, which means that we may see sudden and strong reversal, therefore it could be recommended to monitor charts daily.". The stock market continued to be volatile: we had strong bounce up on August 17, 2010 and then continuation of decline on August 18-20, 2010. By weekly results the indexes (S&P 500 and DJI) moved lower. The exception was the Nasdaq 100 index which stayed above its August 16's Low.

The Nasdaq 100 index was less bearish than other indexes, which could be explained by high bearish volume surges during the decline on August 10-12, 2010. The S&P 500 and DJI indexes did not have such strong bearish trading activity in that period, therefore they were more bearish.

At this moment the majority of technical indicators remain to be bearish by suggesting the higher odds of further decline. However, I would like to drag your attention to the S&P 500 Financial index. If you take a look at this index you will see extremely strong bearish volume over the past two week. We have not seen such strong bearish trading in the financial sector since October 2009. This volume explains that there are many traders in panic of double dip reception (widely advertised all over the news), with fresh memory of crash in the financial sector, who are trying to pull funds out the financial stocks while other (I believe institutional traders) are buying from them in huge volumes (because those stocks most likely still under-priced).

Because of this strong bearish volume in the S&P 500 financial index I may assume that we could be closed to the bottom of the recent correction. Yet, it would be nice to see strong oversold signals first in the S&P 500 and DJI indexes - so far we have not seen strong bearish volume on these indexes on daily charts,

Market Crash

Very nice volume we had today during the crash. It does not matter what was the reason, "computer glitch" or Greece crisis, the market hit down eat, all stop-losses and when there were nothing more to eat it bounced strongly up. Such strong volume means that the institutional traders were buying from those who placed stop-loss orders. All this high volume mean that, now, most likely we have oversold condition when we may have luck of bearish traders to support further decline.

It was crazy day, It was almost impossible to buy (many orders bounced back canceled), still, I like it, because such huge volume surges are clear signals of possible reversal. We still may see some volatility and maybe some decline, yet, I would expect to see the indexes (DJI, Nasdaq 100, S&P 500 and other) moving up.

I'll try to post my view of a "computer glitch" during the week-end.

Volume and Advance Decline

I guess now, at the end of the week there should be no questions that the high volume surge may lead to the shift in supply demand balance and reversal. In current case, strong volume surge during the price up-move pushed the market into situation when those bullish traders who wanted to buy bought and the number of bullish traders who still wants to buy became too small to continue feeding price up-move. As I mentioned in my "Big Volume" post on April 14, 2010: "institutional investors decided to dump ... to bullish traders...". The number of dumped shares on April 13-15, 2010 was quite big and basically it changed the balance of bullish and bearish traders.

Of course, the one may say the market dropped down because of the "Goldman Sachs". I do not consider that this is the reason for the drop we had (unless institutional traders, who dumped on April 13-15, knew about this far ahead and they manipulated the market). Of course, it may amplified the decline, yet, it would not happened if the market would not be overbought. The market declines after high volume surge during price up-move. It has to decline to restore supply/demand balance. In the same way, the Google shares declined despite the record profit.

The media will always explains any market movement as a result of some news. Media sells news and if nobody relays on news then media will not be needed. That is why they do it. Personally, I do not build any trading decision on news releases. Following news release, on my opinion, is equivalent to obeying the commands of those who try to manipulate the stock market.

Coming back to strong decline we had on Friday April 16, 2010, I would say that it was not an ordinary decline. The decline was quite strong and volume during this decline was even stronger than the volume generated on April 13-15 during the price up-move.

As a rule, the stock market (when I mention stock market I assume main indexes: S&P 500, DJI and Nasdaq 100) does not crash suddenly, especially after prolonged in time advance. It is custom to see side-way trading and increase in volatility first. That is why I would assume that we may see the indexes moving back to their recent highs. The volume surge during the Friday's decline itself may push indexes higher. The third factor pointing to possibility of rebound up is critically low advance/decline volume and ratio reading on Friday 16, 2010.

Overall, we still may see some push down, however, I do not expect Friday's decline to grown into strong correction, at least not at this time.

S&P 500 Chart

Last week I have mentioned about side-way trading and waiting until upper or lower resistance lines is broken. Majority of indexes (including Nasdaq 100, S&P 500 and DJI) have run about their high levels (resistance levels) which were set in March, 2010.

The one may notice that even we had overbought signals, sometimes (as I mentioned a week ago) it is good to wait for a confirmation signals. The main indexes (nasdaq 100, DJI, S&P 500, etc) have run above their March, 2010 resistance levels and such move could be considered as a possibility of resuming up-trend. Only a few indexes remained in side-way action. Some of them are Nasdaq Biotechnology, Nasdaq Health Care, and Nasdaq Insurance (see my "Nasdaq Health Care" post). The strongest up-move has been seen in DJT (transportation) sector.

If a week ago technical indicators where mixed and some of them were pointing on possibility of down move, by the end of this week, most of them became bullish. Only some of the volume based technical indicators (see negative divergence on SBV Oscillator on the S&P 500 chart below) remain to indicate overbought levels.

Despite the fact that we may see big bullish volume accumulation, the volatility has drop to its lowest level. Last time such low volatility has been seen in the S&P 500 sector in 2007. The S&P 500 volatility (I refer to daily ATR – Average True Range) was at these levels in period from the middle of 2003 until the middle of 2007 (4 years). As a rule low volatility is an indicator of stability.

Below you may the S&P 500 chart with some technical analysis

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

Technical Analysis

In my previous post (see "High Volume and Volatility" post on March 14, 2010) I mentioned that the market is predisposed to the correction and that I expect to see some side-way trading with preference of staying in cash. Over the last five trading sessions (a week) we saw some up-move with a decline on Friday. At the end of the week, the indexes are about 1% higher from the previous week close. Some may consider it as side-way trading, some may consider it as continuation of up-trend. I would continue to stay on the same position I was a week ago: I would prefer to stay in cash. On such overbought indexes I think it would be too risky to trade "Long" and 1% of gain over five day does not worth a risk. At the same time it could be a little bit early to open a short position.

My position of "staying in cash" is based on the same technical indicators I mentioned a week ago: strong bullish accumulation (result of positive money flow since beginning of February 2010), High volume surges during the price up-move and some increase in volatility. All of this suggests the market (based on the S&P 500, DJI and Nasdaq 100 indexes) is predisposed to the movement down.

Overall technical analysis became more bearish over the last week, mainly because of the Friday's decline. Many technical indicators started to show bearish signs. Yet, I would not disregard high volume during the Friday's decline. This volume may push indexes back to the most recent highs. On the other hand this decline may grow into correction down.

I know that my posts sometimes could look confusing. On very rare occasion I clearly state my view on the possible future trend. However, if you have at least some knowledge in the art of technical analysis I think you can get some of my ideas, compare my technical analysis with yours and maybe find a correct answer. If you are looking for a straightforward opinion and straightforward signals, I am sorry, this blog is not for you. In this case I would recommend going to payable services and get some auto-trading advices.

High Volume and Volatility

Last week (see "Low Volume and Volatility" post on March 7, 2010) I have talked about possibility of flat trading as indexes come to the January 2010 high levels. Now the indexes are at those levels. The past week could be considered slightly positive (the indexes gained modestly over the week), however we may see slow tuning into sideway trading. Actually, that DOW Jones Industrials (^DJI) index has been already moving flat over the last four trading sessions.

A week ago I mentioned "I would say based on the January's oversold levels and that we did not see any strong bullish volume surges we may expect that the indexes may still go higher. Low volatility and quiet trading would confirm that." Now, we have a different picture. Last four trading sessions the S&P 500 index has been trading on high volume. We do not see a strong volume increase in DJI sector. However, as mentioned above the DJI index is already in side-way action. Two trading sessions on the modestly higher volume in the Nasdaq 100 sector cannot be considered as serious threat, however, the Nasdaq 100 index had 13 positive sessions in a row. I have checked 10 years of the Nasdaq 100 history and I found only one period when the Nasdaq 100 index had more than 10 positive sessions in a row: it was in July 2009 - 12 positive sessions in a row.

If a week ago I hesitated to call indexes overbought, now, I would start considering that the Nasdaq 100 and S&P 500 indexes could be overbought. If you check volatility, you would see that we have increase in volatility as well. While one may explain an increase in volatility by coming Triple Witching week when options index options and futures expire, the other may consider an increase in volatility as an increase in activity of bearish traders.

In summary, I would say that even many technical indicators remain bullish, the results of my technical analysis indicates increased odds of side-way trading with possibility of developing a correction. In technical analysis volume and volatility are considering as leading indicators that signal when the market (indexes and stocks) are predisposed to change its trend. Now, as I see we have such signals. Furthermore, I would prefer to stay in cash by waiting for confirmation signals. I could be wrong and stock market could continue going up, yet, right now the indexes are at very sensitive levels.

Free Quotes

This is just a quick post. I saw some free data that could be interesting to somebody and I would like to share the info.

I'll try to post my regular report today afternoon. Meanwhile, If you are interesting in some free data you may find free index quotes at the quote section of MV(http://www.marketvolume.com/quotes/). As a rule they do not show volume and advance decline quotes to the general web surfers and require "free trial" registration at least to see these quotes and data. However a few day ago they have opened access to the general public and you may monitor index volume and advance/decline data for free without any registration.

Below you may see snapshoot of some quotes pages.

At http://www.marketvolume.com/quotes/index.asp?s=SPX you will find free index quotes including volume and advance decline quotes

S&P 500 Index (^SPX)
Last Trade	1106.58		Advanced Volume	1,900,459 K
Trade Time (ET)	12/11/2009 16:00		Declined Volume	699,061 K
Change	4.41(0.40%)		Unchanged Volume	32,205 K
Previous Close	1102.17		Total Issues	500
Open	1103.96		Advanced Issues	315
High	1108.5		Decline Issues	121
Low	1101.33		Unchanged Issues	64
Volume	2,921,573 K		New Highs	46
Up Volume	1,647,332 K		New Lows	0
Down Volume	1,236,660 K		TRIN	0.96

Athttp://www.marketvolume.com/quotes/technical_analysis_price.asp?s=SPX y you my see price free based technical quotes.

S&P 500 Index (^SPX) Exponential Moving Averages Analysis

Indicator	Last	Change	Sentiment*
5-day Exponential Moving Average	1,101.95	2.28 (0.21%)	Bullish
10-day Exponential Moving Average	1,101.21	1.17 (0.11%)	Bullish
20-day Exponential Moving Average	1,097.76	0.92 (0.08%)	Bullish
50-day Exponential Moving Average	1,080.81	1.05 (0.10%)	Bullish
130-day Exponential Moving Average	1,031.35	1.17 (0.11%)	Bullish
260-day Exponential Moving Average	1,020.10	0.67 (0.07%)	Bullish

S&P 500 Index (^SPX) MACD(12,26) Analysis

Indicator	Last	Change	Sentiment*
EMA(12): Fast Exponential MA	1,100.76	1.04 (0.09%)	MACD sentiment is Bearish , although MACD Histogram moves up, it may indicate the possibility of coming changes in MACD sentiment
EMA(26): Slow Exponential MA	1,094.87	0.93 (0.09%)
MACD (12,26)	5.90	0.11 (1.94%)
MACD Signals: EMA(9) applied to MACD	7.70	-0.37 (-4.53%)
MACD Histogram	-1.81	0.48 (-20.91%)

S&P 500 Index (^SPX) Stochastics Analysis

Indicator	Raw Stochastics	Stochastics %K	Stochastics %D	Sentiment*
9-day Stochastics	62.00	48.31	40.31	Bullish
14-day Stochastics	64.31	50.11	41.26	Bullish
20-day Stochastics	64.31	50.11	42.48	Bullish

S&P 500 Index (^SPX) RSI (Relative Strength Index) Analysis

Indicator	Average Gain	Average Loss	Relative Strength (RS)	Relative Strength Index (RSI)	Sentiment*
9-day Strength	3.78	2.57	1.47	59.58	Bullish
14-day Strength	4.12	3.04	1.36	57.59	Bullish
20-day Strength	4.04	3.07	1.32	56.82	Strongly Bearish

Athttp://www.marketvolume.com/quotes/technical_analysis_volume.asp?s=SPX y you may see free volume based technical quotes.

S&P 500 Index (^SPX) VO, PVO and MVO (Volume Oscillators) Analysis

Indicator	VO*	PVO*	MVO*	Sentiment**
9-day Volume Oscillator	0.89	-11.46	0.00	No abnormal volume activity
14-day Volume Oscillator	0.91	-8.85	0.00	No abnormal volume activity
20-day Volume Oscillator	0.90	-10.11	0.00	No abnormal volume activity

S&P 500 Index (^SPX) MFI (Money Flow Index) Analysis

Indicator	Positive Money	Negative Money	Money Ratio (MR)	Money Flow Index Index (MFI)	Sentiment*
9-day Strength	19,464,228 M	16,174,684 M	1.20	54.62	Bullish
14-day Strength	25,424,639 M	24,840,144 M	1.02	50.58	Bullish
20-day Strength	39,849,790 M	32,077,759 M	1.24	55.40	Bullish

Athttp://www.marketvolume.com/quotes/technical_analysis_advancedecline.asp?s=SPX you may see free advance decline technical quotes

S&P 500 Index (^SPX) Advance/Decline Sentiment Analysis

Indicator	Last	Sentiment*
Advance/Decline Issues Ratio	2.60	Positive
Advance/Decline Issues Percentage Oscillator	44.50 %
Advance/Decline Volume Ratio	2.72
Advance/Decline Volume Percentage Oscillator	46.22 %
Advance/Decline Sentiment	72.68 %

S&P 500 Index (^SPX) TRIN Analysis

Indicator	Last	Sentiment*
TRIN	0.96	Trading activity in advancing stocks is approximately the same as in declining stocks
Average Volume per Advancing Stock	6,033 K
Average Volume per Declining Stock	5,777 K

There are more to quotes to chose from....

Advance/Decline

In my previous "Advance/Decline and Volume" post on October 26, 2009 I have expressed that from the point of my personal technical analysis I see a dominance of Bearish market which was confirmed by decline on the stock market during this week. In the same post I have mentioned that I do not know when to expect a reversal, yet, I have pointed that I would monitor indexes (Nasdaq 100, DJI and S&P 500) for high volume surges during the price decline and the S&P 500 index for low advance/decline readings.

Actually we had very low advance/decline volume and issues ratio reading on the S&P 500 index on October 28, 2009. However on that day the critically low Advance/Decline readings were not supported by high volume. Still we had strong bounce on the next day (on October 29, 2009), which looked very promising, yet on Friday October 30, 2009 we had record decline again.

October 30, 2009 is an interesting day. On that day we had high volume on all major indexes and advance/decline volume and issue ratios have dropped to critically low readings again. (You may see the S&P 500 index advance/decline reading at
http://www.marketvolume.com/quotes/advance_decline_sentiment.asp?s=SPX). These two factors suggest that there is a possibility that the market become oversold. In this case volume and advance/decline indicators perform as leading (trend-predicting) indicators that suggest a possibility of a reversal. Yes, if we take a look at major technical indicators (beside volume and advance/decline) we will see that almost all of them are bearish and suggest the higher odds of further decline. However, I would not be very sure in this and personally I do not hold any short position right now. Yes, we still may see some decline, however based on my experience working with volume and advance/decline data I would consider possibility of coming reversal and I would monitor index charts more closely for bullish signals that may confirm my analysis.

As a rule the indexes always react on high volume and low advance/decline data during the price decline by a reversal. There could be occurrences when it could be ignored, however it usually happens during the longer-term recessions or during the stock market crashes. I do not think that the logger-term market is in any of those stages right now. Furthermore, despite bearish signals on many indicators I would rather stay in cash and wait for some bullish signals that may confirm my analysis.

In one of my next post I will try to show my thoughts about longer-term trend. I think, now, the stock market is not the same as it was six month ago and I think it could be interesting to take a look at longer-term index charts (S&P 500, DJI and Nasdaq 100 charts) to see the general tendency of the market movement.

Advance/Decline and Volume

It's nice to be right - see my yesterday's "Volatility" post. Yet, the first tree hours of today's trading session were somewhat disturbing. I think every trader has the moments when from one side the logics tells that the market should not go that way (in my case it should not go up) and from other side there are emotions that it goes in opposite to the expectetions way anyway. I believe many of those who read my blog yesterday were somewhat skeptical during these first three hours. Yet, by the end of the session I think the points mentioned in my last two posts should make some sense.

I understand that sometimes it is difficult (especially if you are reading this first time) to follow my my technical analysis, especially when I do not post a chart snapshoot. As a rule I always use a set of technical indicators you may see in the "S&P 500 Chart" post. You may always get the same chart atwww.marketvolume.com. I'm not telling that you have to rely on the results of my technical analysis or follow my steps precisely. Every trader has to do analysis by him/herself. I'm just trying to share some of my experience in the analysis and if somebody can learn something from this it makes me happy.

Just a few thing that I would like to drag your attention to. The market is down and the sentiment becomes more bearish. During the today's decline in period from 11:30 until 12:00 EST we saw a big volume spike. As a rule volume spike during the price decline means panic selling and could reverse the trend up, yet it was not the case. It is a bearish sign when the indexes ignore volume spikes to the price downside. Another bearish point is the further increase in the volatility.

If we are in a correction  and you ask me when we may expect to be back in uptrend I will answer "I do not know". I may only say let's watch the charts - we may see reversal tomorrow we may see it in a week. In particular I would be paying more attention now to the volume surges (low negative MVO) on the Nasdaq 100, S&P 500 and DJI and advance/decline issues and volume ratios on the S&P 500.

Technical Analysis

A week, ago in my "S&P 500" post on October 11, 2009 I have highlighted September's resistance level and pointed to the dominance of the Bullish signal with possibility of breaking the September's high levels. As a confirmation of my technical analysis applied to the hourly charts, this week we saw further advance on the S&P 500 and DJI indexes. The Nasdaq 100 index was positive during this week as well, yet, it stuck mostly in sideway action around its September's highs.

Right now, we have a little bit different picture on the hourly index charts. Last Sunday my main bullish point was the absence of a high volume during the up-move: "we have not been seen any highlighted trading activity (volume surge), which may shift supply /demand balance, during the recent up-move. Because of that I would say that there are good odds we may see indexes breaking September’s highs". On October 14 - 15, 2009 we had high volume on all major indexes including the Nasdaq 100, DJI and S&P 500. Even this volume surge was not very high I do not think we should disregard its appearance. As a rule volume based technical studies belong to the group of the leading technical indicators and they could be used to predict future possible trend reversals. A volume surge does not imply an immediate change in a trend, yet, it indicates a market condition predisposed to possible changes. Now, I think we may analyze lagging indicators more tightly for a confirmation of a possible correction down.

Taking look at the same set of technical indicators I traditionally use (see the chart in my previous post) I may say that my technical analysis is not bullish at this time. Majority of the indicators are bearish and suggest possibility of the further slide which has started on Friday October 16, 2009. In particular:

1. The SBV Oscillator declines and shows big Bullish volume accumulation which indicate overbought market.

2. As I mentioned above we had high volume on October 14/15, 2009 which is confirmed by the MVO (check its high positive readings).

3.MACD is flat and could be considered neutral.

4. The advance/decline oscillator is in decline by pointing that the traders are focused more on the declining stocks.

5. Stochastics and RSI are bearish as well – they decline and are close to their low levels.

6. The McClellan Oscillator moves below zero line which is considered as a bearish sign.

As I see, may charts and the technical analysis are better-disposed to favor a correction down. The only point against a correction is that taking look at history I have not seen a lot of occurrences of reversal down without a side-way trading at resistance. Second factor that could make a trader cautious is that we do not see an increase in volatility – as a rule when market drops volatility goes up. We see some light ATR (Average True Range) move up, yet, VIX volatility index is moving down. Because of that I would say that despite the bearish technical analysis, It would be nice to see more sideway trading before a correction down. In current longer-term Bullish market I think it could be a good conservative trading strategy to wait in cash for stronger bearish signals and maybe even to miss a short trade than to jump into a short position when you do not have certain degree of confidence.

S&P 500 Chart

Nice week - As I mentioned in my previous "Advance/Decline Signal" post on October 4, 2009 "there are some strong signals of a possible reversal and, personally, I would more closely watch charts over the next couple of days and I would consider that it could be too risky to be in a short position without tighter stop-loss at this time." those indicators that were bearish on February 2, 2009 became bullish on Monday February 5, 2009 and we had further recovery from the correction for the rest of the week.

Now, the main US indexes (S&P 500, Dow Jones Industrials and Nasdaq 100) are at September 17-23 high levels. Since index stuck for a week at these levels in September there is a possibility that we may see some sideway trading or a decline again. However, if we take a look at technical analysis of the same indicators we would see that only Advance/Decline Oscillator, McClellan Oscillator and MACD point to the Bearish sentiment and possibility of a decline. The rest of technical studies show shorter-term oversold stage, yet remain bullish or neutral by pointing higher odds of further up-move.

On mine opinion the most bullish signal for me is an absence of high volume during the recent up-move. We may see strong bearish volume surge on October 1-2, 2009 and this volume surge could be considered as a critical in the resent reversal. However, we have not been seen any highlighted trading activity (volume surge), which may shift supply /demand balance, during the recent up-move. Because of that I would say that there are good odds we may see indexes breaking September’s highs, yet as I mentioned before that we may see some sideway trading and even a decline before that.

Overall, I would say that my technical analysis of hourly charts (1 bar = 1 hour) does not have any leading indicators that would signal a possible downturn. However, I would not recommend rely on my words. What I would recommend is to check chart by yourself: what looks bullish today could become bearish tomorrow.

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

Advance/Decline Signal

Last week, on September 30, 2009 in my "Short Analysis" post I have pointed to the increased volatility as a bearish sign. The next two days after that (October  1-2) the market (indexes) had declined.

Right now taking a look at the same set of technical indicators on the hourly S&P 500 chart (Nasdaq 100 and DJI charts are similar to the S&P 500 chart) I may say that right now, the technical analysis shows the dominance of the bearish sentiment on the market:
- The SBV Oscillator is at low negative level and this is a bearish sign. Yet, it stopped declining and it moves sideway which may point to a possibility of coming changes in the trend in a near future;
- The Advance/Decline Oscillator at low negative level which suggest the dominance of bearish traders, yet, we may see that it started to move up, which suggest that bullish traders slowly started to enter the market.
- RSI is clearly negative – it just declined below 30.
- Stochastics is negative as well, yet it has been under 20 line for 2 trading sessions which would suggest some oversold condition.
- McClellan Oscillator is negative - it is still in the red territory.

As you may see the technical analysis is not a bullish at this moment and would suggest the higher odds of further slide. On the other hand we had some strong positive leading signals that suggest a possibility of coming reversal:
1.We may see very strong bearish volume surge during the decline on October 1, 2009 (see MVO) which would point to the panic selling. On the next day on October 2, 2009 we had normal trading volume and that point that the panic selling could be over and we may see a reversal.
2. We saw very strong oversold Advance/Decline signals on the main indexes (NYSE, S&P 500, DJI and Nasdaq 100) on October 1, 2009. As a rule, such low Advance/Decline readings lead to a reversal.
3. We may see some decline in volatility which is a positive indication.

Overall I would say the may technical analysis results are bearish, yet, there are some strong signals of a possible reversal and, personally, I would more closely watch charts over the next couple of days and I would consider that it could be too risky to be in a short position without tighter stop-loss at this time.

I will try to post a chart next time. Meanwhile you may check the chart setting I use in my previous posts.

Technical Analysis

Nice week. As all indicators were bullish last Friday (see my last week "Volatility" post on September 6, 2009) the stock market rallied up strongly. Now taking look at hourly charts we may see that majority of the technical indicators started to show some bearish signs:

- McClellan Oscillator declined below zero line - bearish sign;
- Stochastics and RSI dropped below 80 and 70 lines respectfully - bearish sign;
- MACD declines - bearish sign;
- Advance/Decline Oscillator declines - bearish sign;

I think closed attention should be paid to the high MVO on September 8-10, 2009. This indicates high volume activity during the price advance. As a rule such high volume could reverse a trend and we already saw slow down in up-move.

The SBV Oscillator is the only indicator that could be considered slightly bullish. It declines, yet, the SBV reading are still at high positive levels.

Overall, taking a look at technical analysis applied to the hourly charts ( see my previous posts for hourly charts setting) I cannot say that the market is very positive. In opposite, there are many signs that suggest a correction down. However, we have just had a strong rally. Taking look at the history I do not see many occurrences of sharp reversal after such up-move. 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.

Volume Technical Analysis

Those who follow my blog may notice that in most cases I write to my blog during Saturday-Sunday. Today, I just would like to make a short post to follow my Sundays "S&P500 Chart" post.

On Sunday I mentioned: "The volume surge on July 8, 2009 was quite big … 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."

Over the last three trading sessions we had a strong up move. Even I did not expect such strong recovery - it is good to see it. It is always good to make double return from what you expected. There is no doubt now that the volume surge on June 8, 2009 (that I pointed to) marked the reversal. Indeed the volume based technical analysis could be "money making machine".

Now, I would like to drag your attention to the resistance levels we saw indexes at in the beginning of June. I'm sorry, I do not post chart today (I'll try do it during week-end), but if you take a look on 1-year daily (1 bar = 1 day) chart of the DJI and S&P 500 indexes and extend these resistance lines you will see that the market had the same resistance levels in December 2009. Because the market indexes spent a lot of time around those levels I consider them very sensitive to many long- and mid-term traders. As a result I would expect to indexes moving around those levels again. It is not necessary has to be that way (keep in mind that this is my personal opinion based on my personal technical analysis). Yet, I would closely watch the indexes over the next couple of sessions, especially after today's high volume – if you look at MVO (MarketVolume Oscillator measures amplitude of a volume surge) you will see how big it is.

A few days ago I have drugged your attention to the high negative MVO reading on July 8, 2009, now I attracting you to high positive MVO readings … (you may see MVO on MarketVolume.com charts).

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

Industrial and Financial Sectors

Just a short post. Today's daily volume on the S&P 500 index is the biggest volume over the last 2 months. Taking into account that this volume surge has been noted during the price advance I would assume that we may possibly see the shift in the supply/demand balance. Similar situation could be seen on the Dow Jones Industrial index. The Nasdaq 100 index does not have such high volume surge, however, this index has been moving flat for the last three trading sessions. Comparing different market sectors I may say that the highest trading activity could be read in the industrial sector ( DJI, Nasdaq Industrials, Nasdaq Capital Markets). I can see high volume in the financial sectors as well - Nasdaq Banking and Nasdaq 100 Financial - yet not as big as in the industrial. Other stock market sectors (DJI,DJU, Nasdaq Internet, Nasdaq Computer) have relatively smaller volume surges or do not have increase volume activity at all.

I do not know why we can see increased trading in the industrials and financial sectors. It could be because the investors are waiting to see Chrysler bankruptcy and how it will affect automotive market, or those investors who bought in February decided to pocket a profit or it could be something else. I know one thing - such big volume means that big number of investors (or small number of investors with big money) started to relocate their investments and that may lead to the change in the supply/demand balance and as a result to a change in the stock market sentiment.

I would personally watched very closely stock market over the next couple of sessions to see how the market will react on this volume. I am not telling that the market will drop tomorrow, it could continue to move up, however I would prefer to stay in cash for now. Maybe I'm wrong and maybe I'm loosing opportunity to make some profit, yet, I consider there are moments when it could be useful to stop and monitor for a while in order to see the development of events - in current situation development of reaction on this high volume.

Support Level

Over the last two weeks in my "Technical Analysis" post on March 9, 2009 and "DJI Chart" post on March 1, 2009 I have pointed that the huge trading volume seen on the indexes would definitely lead to the strong reversal. Last Sunday I have even mentioned that whoever entered long position after February 27, 2009 (day when we started to see huge increase in the volume) could be a winner very soon. Now, we had a strong rally up and basically the results of my previous technical analysis are confirmed by that.

As you may see, the volume based technical analysis sometimes could be very easy and in some cases it could be very complicated. As a rule it is easier to analyze volume on the longer term-periods and it is easier to define support levels. On the longer term charts and at support levels volume surges are stronger and more noticeable. Yet, when it comes to the shorter term charts and defining resistance levels volume based technical analysis becomes more complicated: volume surges are not as clear in the resistance as they are in support, and with smaller timeframes you have to consult higher timeframes charts to see general market trend and analyze volume in accordance to it. The same principles should be applied not just to volume but to any technical indicators. The difference between volume and price based technical analysis is that the volume shows the market sentiment that is based on the money flow, while price indicators rather follow the event. Volume never lie, yet, traders do mistakes in analyzing it. I'm not stating that the volume is the best technical indicator. It is difficult and sometimes almost impossible to apply volume analysis to low trading stocks. That is why volume works best with indexes.

Now, after the strong rally it is logical to ask if the market will continue to recover. There is no doubt that over the last couple of sessions the market could be considered overbought at least in short-term. Yes, if we take a look at 1-year and higher timeframe charts we may see that the stock market is still heavily oversold (especially DJI sector, then S&P 500 sector while Nasdaq 100 companies are less oversold). However, when you go to the lower timeframes you start to see some indications of overbought market. From this I would assume that the market still has power and most likely will go higher, however, price does not move up all the time - it moves up by having corrections down time on time. Taking look at the smaller time-frame charts I may see that we could be looking forward if not for a correction then at least for slow down and flat market.

I think everybody now believe that March 6, 2009 has market very strong support level due to the volume output in period from January 20, 2009 until now. I do not think we will see index back at this levels very soon. It is too early to judge if this is the end of the recession - it is not something that should be done after four positive sessions. Yet, I think we could expect good market over the next couple of month.

Volume and Indexes

Since nobody leaves any comments I will take a courtesy of telling some good words. From my last week "Technical Analysis" post

"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."

It's nice to be right, especially on the stock market where it could be reworded. I may say only one thing - volume never lie. There are still a lot of traders who is very skeptical about volume analysis and who underestimates the power of the volume based technical analysis. I am not telling that the price based indicators are bad. No, not at all. However, price analysis without volume is zero, the same as volume without price tells nothing.

I consider myself not a very bad in the index volume technical analysis and I will take a risk to give two advices:

1. If you still do not have any volume based technical indicator in your arsenal, take it and learn it. I'm not talking about rejecting your price analysis, but completing it with volume technical analysis. Remember, the price trend is always described by price change and by volume during this price change. So, why to look only on half of the picture?
2. If you still do not analyze indexes (even if you trade stocks) take a look at them. I'm not talking about stopping to analyze stocks or switching to index derivatives trading. Stock analysis is very narrow and does not show where the market goes. Only index analysis (not CNN news) may tell you where the market goes. I bet over the last three sessions even lousy stocks were happy. Find our what index your stock belongs to and take a look at this index - find out where the market sector your stock is traded goes.

Low Trading Volume

One short trading week on light volume is behind. Another short week is still ahead. As a rule, Holiday season is marked by low trading volume and the current period is not an exception. Last week in my "Index Analysis" post I have mentioned a possibility of move down - that what we have got. Now the situation is a little bit opposite and I would say that looking at my technical analysis I see some higher odds of move up. Again, the same as last week I did not expected strong movements, I would not expected a strong rally during the next week either, mainly because of light trading volume.