ETFs Trading

Exchange Traded Funds have become very popular over the past decade. This is one of the simplest way for many investors to trade the market. Amazing thing is that not just retail traders are using ETFs, but many professional investors, portfolio managers and big companies are investing into the ETFs.

One of the best thing about Exchange Traded Funds is that there is no need to perform fundamental analysis in order to start trading, especially when it comes to the trading funds that track indexes. You do not have to do it! Why? Because it is already done by the sponsors of the indexes. The index listing is revised on the regular basis and weak companies (stocks) are removed. As a result, a trader (investor) may solely focus on other aspects of trading such as technical analysis, developing a trading system, and etc.

So, do not waste you time in research of the magic stocks that can make you a fortune. Focus on something you are capable of doing. I do not believe that a simple trader has ability and access to precess thousands of information (reports, balance sheets) for thousands of stocks and do it on regular basis. trust the professionals who already do it for indexes and trade indexes through the Exchange Traded Funds (ETFs).

Inraday Charts

The indexes (Nasdaq 100, S&P 500 and DJI) have come to their highs seen on October 18, 2010. We already started to see some resistance to the up-move. Money flow on 1-min chart is already negative and on the 5-min chart money flow is moving towards negative area. The morning trading went on quite strong bullish volume (see hourly volume charts for S&P 500, Nasdaq 100 and DJI) - this is another force that may stop the today's advance. The money flow on the 15- and 30-min chart remain to be positive. I would continue to monitor these charts to see if any changes in the indexes' sentiment occur.

New day - New data

New day - new data - new view on the market. In similar to September 30h way we had strong opening. Index futures traders have pushed the indexes up before the bell, yet, in opposite to September 30th way this time positive sentiment on futures market was supported by positive move on the stock market and indexes continued to move up.

As I mentioned above, new day brought new data that on my opinion attention should be paid to:

 - we had very strong volume during today's run up. The strongest increase was seen in the financial sectors (see Nasdaq Financial and S&P Financials). NYSE daily volume is the highest daily volume since July 16, 2010. Nice volume increase was seen in the S&P 500 and DJI sectors. However, the Nasdaq 100 index volume was not as high;

 - we had very extremely strong bullish advance/decline readings;

- we have further increase in volatility on daily charts;

- S&P 500 and DJI broke their high levels seen on September 30, yet the Nasdaq 100 index stayed below its high.

High volume means big players are in the game. The question is what they are doing - are they selling at high (indexes are at their 5-nmonth highs) to greedy buyers and to short players whose stop-losses were hit when indexes opened strongly up. Or they are buying at high because they have information that assures them that the market will go up without any correctional move down??? I do not think retail traders could be selling in such amounts. However, there could be other big players who decided to play short at high - in this case this is a battle between giants and we should see who wins when we see volume down.

Trading Strategy

Last week in my "Side-Way Trading" post I mentioned about a possibility of short-term up move, yet, I was skeptical about strong up-move. It appeared to be that I was wrong. We did have a strong up-move. One more time the stock-market has proved that sooner or later everybody makes mistakes in analysis and stop-loss strategy should be used not just to cut losses but to protect profit as well.

During the last four positive sessions the indexes (Nasdaq 100, S&P 500, DJI, etc) have come close to their June's and Augusts' high levels. So far, the odds are good (from technical analysis prospective) we may see the indexes third time at those levels. Twice the stock market (indexes) has bounced down from these levels and most likely we may see slow down again.

Majority of technical indicators continue to be bullish and as I already mentioned, the technical analysis suggests that we may see the indexes moving higher. There are only two negative sings from my point of view.

First thing is high volatility level. The stock market continue to be highly volatile and this is a bearish sign. In such volatile market we could have strong down move in the same short period of time as we had the current 4-day up-run.

Second negative thing, from my point of view is that the market was not strongly oversold, yet it did make strong up-move in short period of time. It is more like some institutional investors came back from vacations, they saw stocks cheaper than a month ago and they started to buy. What is going to happen when their buying power became exhausted?

Because of these two points above, it is still difficult for me to believe in strong recovery (Yet, I could be wrong). Because of that I would not be playing long at this moment. At the same time there is no bearish signals and because of that I would not be playing short either.

One of the rules in my trading strategy is staying in cash until I see a pattern. I missed the last up-move - I did not lose money on that, I just did not make as much as I could. Still, the fact is that I missed this move and now it is better to stay in cash in order to avoid another mistake. My view on the current stock market condition is that I would expect to see indexes at their June's and Augusts' high levels. Then, depending on how those levels are hit (is they are hit) I would built further analysis.

Index Trading

It look like my bullish points highlighted last week (see my "Technical Analysis" post on July 5, 2010) have been paid off. In that post I wrote "Taking into account that the DJI and many other indexes are at the bottom of the historically defined longer-term side-way corridor (see charts in my previous "DJI" post) I would assume that we may see a bounce up. At this moment, I would not try to guess whether it could be just a small bounce or a strong recovery toward April's highs." If on Tuesday July 6, 2010 there could be some skeptical thoughts about my bullish points, then, I think, the last three days of the strong rally up have confirmed that the indexes were oversold indeed and that historically defined long-term side-way corridor is still "in charge".

As I mentioned before, I will not try to guess how far the indexes (Nasdaq 100, S&P 500 and DJI) may go up. They may go all the way to the highs seen in April 2010, they may go to the resistance we had in the middle of June 2010 or they may advance just a few points up and then started to drop. I know, this may sounds a little bit annoying and some of the readers would expect rather to get straightforward answer. To those readers (traders) I may only say "I am sorry, I do not do it". I watch stock market (indexes and ETFs) on daily basis from 9:30 until 16:00 EST. For me, the stock market is an alive entity that is in the constant change. Today it strongly bullish and tomorrow it could be strongly bearish and the day after tomorrow it could be strongly bullish again.

So far, the majority technical indicators are bullish by suggest the good odds of the further recovery. I like that the volatility goes down, which mean more stable trading. I like the high volume at the beginning of the recovery on June 7, 2010, which I interpret as a buying action of institutional traders. I like that the market bounced from the bottom line of the longer-term side-way corridor (see charts in my "DJI" post). In addition we are in the beginning of the "Summer Vacations" period when we may expect low trading volume and more stable trading which is usually favors up-move. In summary I would say that I see number of factors that favor further up-move. Yet, I would still recommend monitoring charts for any the changes in the sentiment. As a rule up-move does not ends suddenly - in majority cases we may see couple of trading session of side-way move at resistance.

Volatility still Up

As expected, we had a strong bounce up from the oversold levels.

I will be short:

Today's rally up is logical reaction on high volume surges during May 6-7, 2010 decline.

The good news is that today's trading session daily volume on all indexes (NYSE Composite, Nasdaq Composite, S&P 500, DJI, etc) is lower than the daily volume we had on May 6-7, 2010. We may see changes in the money flow toward positive readings. Many technical indicators became bullish suggesting a possibility of further recovery.

Not very nice news is that the volatility remains on high level and still is raising. Today's advance was quite strong - we have not see such strong daily gain since 2008th stock market crash. Because of that, Even I consider that the odds on the side of up-move, I would be very cautious and I would not be strongly bullish until I see some decline in volatility.

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.

Nasdaq 100

The last week of 2009 (see my previous "Light Volume Trading" on December 27, 2009), as I expected, was relatively flat and quiet.

Taking a look over the last month we may see that the DJI has been trading mostly side-way in the narrow 2.5% corridor (see my "DJI" post) since the middle of November 2009. The DJI has been trading above the upper line of this corridor just for a couple of trading sessions, yet on December 31, 2009 this index dropped back into its corridor range.

The S&P 500 index has pattern similar to the DJI trend. It advanced about 100 points (about 1%) above the upper line of its November-December side-way trading range and on December 31, 2009 it dropped back.

The NASDAQ 100 index was an exception from the DJI andS&P 500 indexes rule. In opposite to the rest of the indexes and the rest of the stock market, starting from the middle of December 2009, the NASDAQ 100 index advanced strongly.

Personally, I did not like this move on this index. It is a strange to see a rally on the single index while the rest of the stock market is hesitating in starting a correction down. The current behavior of the NASDAQ 100, DJI and S&P 500 indexes remind me the minimized variant events in 2007. If you open 5-year index chart you will see that the DJI and S&P 500 indexes stopped their up-move in May 2007 and these indexes where mainly traded side-way until the beginning of November 2007. The NASDAQ 100 index (in opposite to the rest of the stock market) continued to move up strongly until the beginning of the November 2007 as well. And then, in November 2007 strong correction started which then turned into strong down-trend which then turned into dramatic stock market crash.

Such stock market behavior could be explained in the way that after strong long-term up-trend (in period from June 2006 until May 2007) the stock market became heavily overbought and was ready for a correction down. The stock market was ready for a correction down in May 2007, yet the NASDAQ market sector still had a potential to move higher and still was collecting greedy buyers and delaying the rest of the stock market from a correction. Then in November 2007 when the NASDAQ sector has become heavily overbought as well and was not able to hold the rest of the market from the correction we had a beginning of a strong decline. It is another story that during this decline (in August-November 2008) the market discovered housing bubble in the financial sector and discovered that automotive industry oversupplied the market, which all lead to turning the strong decline into the strong stock market crash.

Right now we have some similar mini-version of the same events. Since July 2009 we have not seen any strong correction. Mostly positive trading pushed US indexes strongly up. There is a possibility that the indexes and corresponding stock market sectors has become overbought and are ready for a correction down, which would be very healthy. Yet, theNASDAQ 100 index continued to collect the buyers while the rest of the market was trading side-way. If the indexes are overbought and just waiting for the NASDAQ to reach its overbought top, then when it happens, I think we may face a stronger that usual correction down.

I am not stating that we may face another stock market crash. Stock market crash does not start suddenly in one day. A rule it starts from the strong correction down and if during this correction very bad news are revealed, than there is a possibility that the "very very very bad news" may turn a correction into crash.

Overall, despite the positive sentiment on the market, I am a little bit skeptical about further up move. Taking look at longer-term index charts you may find that many technical indicators signal strongly overbought levels. We have not seen any strong correction since the begging of the recovery after the crash (since March 2009). On longer term charts, the only noticeable correcting occurred in June 2009 (about 10% on majority of indexes). The NASDAQ 100 completely recovered from the crash by running above its September 2008 level. So, I think that the market should be at least a little bit overbought and it would be healthy to have a correctional move down... unless we are at the door of another bubble...

Light Volume Trading

I have mentioned several times over the last time about side-way trading and more conservative approach would assume waiting when upper or lower line of this corridor is broken. So, we have upper line of the 2.5% corridor broken (see my previous "DJI" post on December 20, 2009). However, not many indexes have run over this level and I would not run into conclusion that now only Bullish market is in front of us. We may see that the Nasdaq 100 index run strongly up. We may see that theS&P 500 index advanced above upper line. On the other hand the DJI index, NYSE Composite index and some other indexes are still in their side-way corridor. This is not a very nice picture when some of the indexes are rallying up while other indexes are stuck in side-way action and I think it tells that the current move up is not something that is supported by a whole market.

When a rally on some indexes is not supported by up-move in whole economy there are good odds that this move may halt soon. It usually happens when the market is ready for a correction, yet, it does not moves down because group of positive market sectors (positive indexes) holds other indexes on the same level (in the side-way corridor). If this is the only thing that hold the market from the correction down, then this rally on the Nasdaq 100 could become exhausted very soon and then what?

From the prospective of technical indicators, at this moment, the sentiment is positive and suggests possibility of further up-move. However, this is a holiday season, we have light volume and historically this period of year is marked by slow and positive trend. I would not expect to see any strong movement next week, yet, in January 2010, I think, we could be surprised...

Sideway Trading

The indexes have been trading side-way since November 16, 2009. If you take a look at the Nasdaq 100, S&P 500 or Dow Jones Industrial charts you will see that since November 16, 2009 the main swing happened at the market open and majority of the time the indexes were traded side-way and basically they are at the same level were they three weeks ago.

The sentiment on the stock market becomes more intense. Second time since November 16, 2009 we may see increase in volatility which is not a very positive sing. The last trading session on Friday December 4, 2009 was quite contradictive - very volatile and on high volume - on lower time-frame index charts we may see bullish signals and on higher time-frames charts we may see bearish signals.

I would not say that the technical analysis is bearish at this moment. Majority of technical indicator are bearish at and taking into account an increase in volatility the one could say that the odds of the developing a strong correction are quite high. On the other hand, over the last weeks we saw very sudden changes in the sentiment when at the market close the indicators were bullish and on the next trading day at the opening the market was deeply down or indicators were bearish at the market close and on the next trading day at the open the market was strongly up.

Overall, I would say (strictly my opinion) that the bullish indications on intraday index charts are not letting me to trade short. At the same time bearish signals on higher time-frames make me scary to be in a long trade. In general, I would expect to see strong correction down, yet, intraday Friday’s strong bullish signals are somehow unexpected and do not fit in the general picture of the sentiment. Furthermore, I would stay in cash for a while. I think the coming week could be very interesting and define the trend. I consider that it is better to make less profit than go into a gambling.

Trading on Dubai World Worries

Last week, in my "S&P 500 Advance/Decline" post (on November 21, 2009), I mentioned about very low Advance/Decline quotes readings on the S&P 500 which signaled oversold stock market sentiment. I have pointed to the higher odds of the up move at that time. The indexes (S&P 500, Nasdaq 100 and DJI) indeed reacted on that oversold signals by the strong up-move on November 23, 2009. However, this gain was shadowed by the "Dubai World financial worries" that hit the market and pushed it strongly down on November 27, 2009.

I would say that on my opinion, there are two good and two bad things about this sharp drop down. The Friday's decline at the market open is one of the strongest declines within a single session since the end of recession (March 2009). This is the first bad thing - it shows us that the stock market is on the stage when it could become unstable very easily and that the sentiment among investors is not as bullish as it was 6 months ago. Actually, it confirms my conclusion expressed in the "Long-Term Technical Analysis" post on November 17, 2009 that the stock market is not the same as it was 6 month ago.

Strong decline on November 19, then strong advance on November 23 and then strong decline on November 27, 2009 - all of that suggest an increase in the volatility and that is not very good (second bad thing). If you take a look at volatility indicators (VIX index, ATR, Standard Deviation, etc) you will see that the volatility is still at low level which is good. Yet, should volatility continue to increase we could face a possibility of a correction down.

The first good thing is that the indexes have been very little time at their lowest level on Friday 27, 2009. The Nasdaq 100 index started to move up on the second minute of trading, the S&P 500 index reversed up after only 2 minutes of decline and DJI index has started to recover in ten minutes after the market opened. It looks like (it is an assumption only) on Thursday November 26, 2008 (when the "Dubai worries" started to spread out) a lot of bullish traders (investors) who were in long position have placed stop-loss orders, those of bullish traders who were in cash have canceled their buy orders and bearish traders placed sell orders. After the market open on Friday, it took about 10 minutes to satisfy demands of all traders who were in panic (who placed stop-loss order and who placed sell short order) and execute their orders. Then, those bullish traders who were in cash and decided to cancel "Buy Long" orders on Thursday, on Friday's morning were attracted by low barging price and started to buy by overbuying "bearish traders in panic" and by pushing stock market up. If the first bad thing is that we have big group of investors whose sentiment is unstable and who could push market down, the first good thing is that we still have a lot of traders (investors) who is looking for a good bargain price to buy.

The second good thing is that during the recovery on Friday we had very strong volume, especially taking into account short trading session. I would say it could tell us that the number of investors trying to buy at low is quite big.

Overall, the stock market is in sideway trading since November 11, 2009 - it is very clearly could be seen on the S&P 500 chart. The upper sideway trading line is going through the highs on November 16, 23 and 25 and the lower sideway line goes through lows on November 13, 19, 20 and 27. By not going deeply into technical analysis a conservative trader may say: let's wait when one of this line is broken and stock market trend is defined more clearly.

In general I'm still slightly bullish by the following 3 reasons:
 - over the last 2 week we had 3 times very low oversold advance decline readings;
 - volatility is still low, yet it very close to the the dangerous level;
 - on Friday the indexes have break lower line of sideway trading, yet they climbed back above it very fast and did not continued to decline.

Despite the fact that I'm slightly bullish the danger of a strong move down is quite big...

Simple Trading Strategy

A few weeks ago I promised to take a look at the longer-term charts and longer-term technical analysis. I think it's time to check the general stock market trend. It is my strong believe that a trader, no matter what he/she trades, has time on time to apply technical analysis to the longer-term index charts (Dow Jones Industrials, S&P 500, Nasdaq100 charts) and to evaluate the current stock market stage in order to adjust or change used trading strategy.

A trader can develop and have permanent trading system (set of technical indicators and rules that generates trading signals). Yet, if a strategy of using this system is not adjusted to the general stock market stage then, no matter how good a trading system is, this trader risks to face the system failure sooner or later. The stock market is a live creature. It is in the constant move, it is in the constant change and it is in the constant adapting to the new trading rules, to the new generations of traders, new values of the society, etc. If you are looking for some "Golden Trading System" that require no studying, no monitoring, no work, but just sitting on the couch and calculating a profit then instead of becoming a trader you should spend your money on beer and recreations - at least you receive emotional satisfaction.

There are several examples of simple trading strategies that adjust a system to the longer-term stock market trend. I just want to mention a few of them as a reference to my point of importance of longer-term technical analysis.

Simple Trading Strategy Example #1:

If the longer-term trend could be defined as an up-trend then the strategy of using trading system can put more weighting on "Buy" signals:

• ignore weak "Sell" signals and trade only strong and confirmed "Sell" signals to open a short position;
• trade all "Buy" signals, including the weak ones;
• have a tighter stop-loss strategy when short trade is opened;

Controversially, when the longer-term trend could be defined as a down-trend a trading strategy of using a system could be emphasized on using "Sell"’ signals

• ignore weak "Buy" signals and trade only strong and confirmed "Buy" signals to open a long position;
•  trade all "Sell" signals, including the weak ones;
•  have a tighter stop-loss strategy when long trade is opened;

If the results of the analysis show that the stock market is in a sideway move then a trader may apply equal weighting to "Buy" and "Sell" signals – treat them in the same way.

Simple Trading Strategy Example #2:
(even simpler than the previous strategy)

Stop trading and stay in cash when the longer-term stock market trend could be defined as down-trend and go back in to the stock market when the stock market is in the up-trend.

Selection of a trading strategy depends on what you trade, how you trade (how many trades you made) and how much you trade (how much you invest into a trade). It is essential time on tine to take a look on the general market picture and see where the longer-term trend is going. If you have longer-term technical analysis behind your trading strategy then the odds your trading system is successful are much higher.

In my next post I'll try to show my personal view on the longer-term technical analysis with a reference to theS&P 500 chart.

Volatility

It looks like a conclusion I expressed in the last paragraph of my previous week's post (see "Technical Analysis" on 10/18/2009)" was correct call. Now, we may say that starting from the middle of October 14, 2009 the market has been trading in the sideway corridor. We may draw the upper line of this corridor trough the October 19, 21, 22 highs and the lower line of this corridor would be placed through the lows on October 16, 22 and 23. Three times the indexes (S&P 500, Nasdaq 100 and DJI) have bounced down from the upper line of this resistance corridor and now this is the third time when the indexes have come close to the lower. I think if the lower line of this corridor is broken then we may officially say that the stock market is in a correctional move down.

It is worth mentioning that over the last week we saw increase in volatility which could be considered as a Bullish sign. As a rule, lower volatility could be witnessed during up-trends and down-trends are accompanied by higher volatility. Over the last one and a half week we have several signals to go short, yet, they were not confirmed by an increase in volatility.

I mentioned in my previous post "it could be a good conservative trading strategy to wait in cash for stronger bearish signals". Now, if we take a look at hourly index charts we may see negative signals again, and this time the bearish signals are confirmed by an increase in the price volatility. Because of that I would say that at the end of this week the odds of the correction down are higher than they were last week (on October 16, 2009) when the indexes at the same level they are now.

Still, the technical analysis is not an exact science and the results of the technical analysis do not guarantee the market direction. The only thing I may recommend is to monitor charts. Personally I consider that an accurate analysis of several technical indicators should help any investors and every investor should have in his/her arsenal at least three technical indicators: 1) price based, 2) volume or advance/decline based and 3) one of volatility indicators. Maybe 50 years ago investors could rely on a single indicator in their analysis. Yet, the current market is not the same as it was before and you may not rely on a daily MACD only (or any other single indicator).

S&P 500 Chart

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

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

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

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


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

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

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

Index and Stock Trading

I consider index analysis as one of the most important element in any trading system. A trader should know the general market trend and only index analysis can help with this. I would say there are 2 main points in the index analysis that should be used for stock trading:

1. Analyze DJI and S&P 500 indexes to see the general market trend – you do not want to trade against the general market trend, especially if you mid- or long-term trader. If based on the S&P 500 and DJI technical analysis you may define whether the economy is in the recession or on the rise, then you have to build your investment strategy in accordance to this. You do not want to see your pension funds, other long-term and mid-term investments in the long position if the market is in the recession. At the same time it would be wrong to stay in cash if you see the stock market in recovery and up-trend.
2.  Analyze the index your stock belongs to. If you trade stock of the of the internet company and this stock is covered by the Nasdaq Internet index I think it would be logical to take a look at this index to see the general tendency of all internet publicly traded companies. If you trade stock of the financial company, you may want to take a look on the S&P 500 Financial, Nasdaq 100 Financial or other financial indexes. It could be useful to know what is going on in the industry your stock belongs to.

In general there are only two rules based on the index technical analysis recommended when you trade stocks:

• It could be safer to stay in cash when result of the index technical analysis contradict to the results of your stock technical analysis stock;
•  It could be recommended considering opening a trade when signal based on the stock technical analysis goes along with results of the index technical analysis.

By embedding elements of the index technical analysis into a stock trading system you may substantially reduce the number of trades, however I would consider it more conservative trading.

Nasdaq 100 is behind

No post past weekend – went surfing...

Has to be very short… Trying to post during my major work...

Can say one thing – I’m watching out for volume… I see strong volume during the index drop in DJI and S&P 500 sectors and I consider that Dow Jones Industrials and S&P 500 indexes are heavily oversold. Yet, they are oversold not as strong as in January 2008, however, stronger than in March 2008. The NASDAQ 100 index is quite behind. It slid down without generating the big volume surges. While DOW (30) broke its January and March 2008 lows and S&P 500 came close to the March 2008 low by breaking the January 2008 low, the NASDAQ 100 index is still far above its low levels – no wonder we do not see the panic selling in the hi-tech sector.

What do I expect? – In one of the scenarios I would expect to see is a strong volume surge which would indicate the climax of the panic selling after which the market could strongly reverse its trend. In this case the stock market has to ignore the fact that the NASDAQ 100 stocks are not as oversold as the rest of the market. Another scenario I see is that the NASDAQ 100 may start to push the market down by trying to catch other indexes in the current crush. In the second scenario I would expect to see high volume which would indicate the climax of the panic selling as well.

That is why I am watching volume now...