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.

Low Volume and Volatility

Another week of bullish trading and indexes (S&P 500, Nasdaq 100 and DJI) have climbed close to their January 2010 highs. In my "Money Flow" post on March 1, 2010 I wrote "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". This exactly what happened this week - three day of flat, side-way trading and then up-move to the January's highs.

On January 31, 2010 in my "Technical Analysis" post I have talked about coming reversal and on February 4 and 7, 2010 in "NYSE Advance/Decline" and "S&P 500 Chart" I confirmed that the market hit the bottom. In one of my posts I mentioned that at that time the market was strongly oversold and it had power to climb back to the November-December 2009 flat levels and then to the January 2010 highs.

As a rule, when I look at the longer-term charts, I'm not trying to where the market is going to be in a month or two. When a trader (technical analyst) is trying to say where the market is going to be in a month he/she could run into situation when he or she can become relaxed and miss some important and critical events. I look at charts every day (during the trading session and after the market close). When I look at longer-term charts I have made a habit do not analyze where the market /indexes or stock could be in a month but rather say how strongly overbought or oversold market is and what is currently moving longer-term trend. I'm not stating that everybody has to do it, yet on my own experience I found that this is the best way to come to the longer-term charts and longer-term trends.

When somebody tells you that his technical analysis results tell him that the Dow Jones Industrials (^DJI) will be 6% up within a month, I would only tell that this person is a gambler who sells himself as a pro. You cannot tell where the DJI could be in a month. Anything could happen during this time. You may say that the DJI index has power to run 6% up, however, depending on how it runs, it could be 3% run or it could be 15% run. That is why when you make a statement about future trend and this statement is confirmed, it still could be highly recommended to monitor how predicted trend goes.

Now, when the indexes came close to the January's highs I think it could be useful to take a look at this recovery. Even as I said that the indexes (S&P 500, DJI and Nasdaq 100) were strongly oversold by February 5, 2010, we have not see a strong recovery on these indexes. They moved up, however it was very quiet move when most of the time the indexes were in side-way action with only modest advance. The volume during this recovery was stable and this recovery did not generate any strong volume surges. All of this would tell that:

1. The bullish traders are dominant on the market at the current moment, however their pressure is not very strong and they cannot push the price up stronger.

2. Current recovery did not generated any greedy buying when we would see investors rushing into the market and pushing prices up.

3. Current recovery did not generate a strong desire to fix profit a leave market.

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. However, I think that the supply/demand balance is only slightly in favor of the bullish traders. One of the scenarios that I'm looking at is side-way trading at January 2010 high levels (it could be higher or it could be lower). If during side-way trading we see an increase in volatility and volume surges then I would recommend checking charts for possibility of another correction.

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.

Advance/Decline

As I mentioned a week ago in the "Flat trading and volatility" post on February 14, 2010 the Nasdaq 100 index is at its January 26, 2010 high, while the S&P 500 and DJI indexes run over their January 26 and February 3, 2010 highs. So, I may only say that advance decline indicators that signaled the oversold level and coming reversal (see my "NYSE Advance Decline" post on February 4, 2010) have been paid out...

I think many traders, including some readers of my blog, were skeptical about reversal on February 4, 2010 after the market close when I published my thoughts about NYSE advance/decline reading. I believe now, those traders may consider re-evaluating their opinion about advance/decline indicators. Advance/decline indicators is not something that would generate signals several times per day. However, I'm ready to wait patiently  (even for several months) in order to have ability to play such perfect signals.

Coming back to the technical analysis, the next question would be whether the indexes will run to their January 19, 2010 high levels. There are several factors that would favor the continuation of the recovery from the recent correction. First of all the, the last week recovery did not generate any volume surges to the price up-side. Which tells that, so far, this up-move is stable and there are no any abnormal trading activity that may cause shift in supply/demand balance in a favor of bearish traders. The majority of technical indicators remain to be bullish, especially on higher time-frames.

On the other hand, 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.

Overall, I would say that the odds are still good for indexes (Nasdaq 100,S&P 500 and DJI) to run to their January 19, 2010 highs (of course not in one trading session). However, shorter-term time-frames suggest possibility of some move down and I would monitor it to see if it may grow into something more bearish.

Please, bear in mind that those are my personal thoughts, and before relaying on my words I would highly recommend taking look at charts and technical analysis by yourself. I'm sorry I'm not posting any chart snapshots today. I think majority of my readers are traders or other people interesting in stock market, who, as a rule has access to charts.

FED Rate Increase

After the market close QQQQ (Nasdaq 100 tracking stock), SPY (S&P 500 tracking stock) and DIA (Dow Jones Industrials Tracking stock) sharply went down around 16:30 as FED announced the rate increase to 0.75%. As a rule FED rate change usually affect stock market in short-term only and as a rule the indexes are very volatile during these announcements. It could be that the indexes will be down tomorrow at the market opening - let's see if they stay the rest of the session in negative area.

Flat Trading and Volatility

As I expected and as I mentioned in my "S&P 500 Chart" post on February 7, 2010 the indexes and the market are moving up from their February 5, 2010 low. Still it's difficult to call this up-move as a strong recovery. 3% on the S&P 500, 2% on the Dow Jones Industrials and 4% on the Nasdaq 100 does not looks like the market is in a mood to show strong reaction on highly oversold indications noted in period from January 29 until February 5, 2010.

Taking look at technical analysis of volume, advance/decline and price based indicators I may say if at the beginning of the week majority of the indicators signaled bullish trend, right now, after one week of almost flat market, we still may see bullish indications yet, these indications are not as strong as they were a week ago. Still, I would say the odds would favor the recovery towards at least January 26, 2010 highs. However, we may see change in the sentiment any trading session.

We should not forget that the stock market has been in the strong up-rally for six months (since the middle of July 2009 until the middle of January 2010). It would be natural and healthy for the stock market to have a strong correction down (as we have now). It is difficult to state how strong the current correction should be in order for the market to resume its up-move. It could be that on January 5, 2010 we saw the bottom of this correction, still there is a possibility that we may see some further recovery and attempt of the market (indexes) to revisit the most recent lows.

The biggest concern that I have at the current moment is that within the last week of almost flat trading we have not seen decrease in volatility. Yes, the indexes (S&P 500, DJI and Nasdaq 100) have moved up couple of the percents, however, this up-move has been volatile.

S&P 500 Chart

I have already mentioned in my Thursday's "NYSE Advance/Decline" post about my thoughts of coming reversal as a reaction on extremely low Advance decline reading in all market sectors including but not limited by the S&P 500 index sector, DJI index sector, Nasdaq 100 index sector and most important by NYSE Composite sector.

When could we expect it? It is possible that Friday's drop down and strong recovery marked the bottom (support level). It could be that we still may see some volatility and slide down... Yet, I consider that we can see up move very soon. Taking into account the volume during the recent correction I would say that the market (indexes) have been strongly oversold and it is predisposed to move up to the February 2, 2010 highs and even to the January's highs.

I understand that many traders are afraid that the recent crush may grow into long-term recession. Personally I do not even consider it right now. Long-term recession and stock market crash does not start suddenly. There should be very bad economical news to trigger recession. Yes, we can see a year of side way trading as it was in 2004 and 2005. Yes, during this sideway trading the stock market can go lower. Yet, I do not think that somebody was able to generate another bubble, unless there are political factors that we not aware of and which that may affect the economy (inability of Government to stimulate economy, refuse from China to buy Treasury Bonds, etc)

Coming back to the technical analysis and by taking a look at my traditional set of technical indicators on the hourly chart I may say that may technical analysis is mostly bullish. Many of technical indicators are showing bullish signs and many of them are on the edge to become bullish:

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

NYSE Advance/Decline

Scary drop, isn't it? In my previous "Technical Analysis" report I have expressed my opinion about oversold market and possibility of recovery. Actually we had 3 days of up-move, yet, it was quiet recovery not a strong one as I expected. Today, in one trading session all gain of the previous 3 days has been wiped out. That is why I always mention that charts should be monitored on daily basis which should provide you with ability to spot in time changes in the sentiment.

From one side today's drop is very scary and I am sure it pushed many traders into panic. From other side it completes the picture. I usually do not make posts during the week, yet today is very nice days from the advance/decline data prospective. Today advance decline volume and issues data have hit very low levels. It happened not only on the S&P 500 index but on all major indexes and exchanges. It was on October 15, 2008 when I saw last time such low advance decline readings on the NYSE Composite Index. Other low NYSE advance/decline readings (yet not as low as today) were noted on November 12, 2008 and on July 22, 2009.

History shows that such low advance/decline readings, especially in the NYSE Composite index, suggest strongly oversold market with high odds of close recovery. So, even the today's drop looks very scary it made me optimistic and I would not bet anything on short trading now.

For reference: Advance/Decline Quotes.

Technical Analysis

Coming back to the technical analysis I may say that do far we have not seen a market reaction on the oversold indication seen on January 21-22, 2010.

The good news is that the S&P 500, DJI and many other indexes did not dropped strongly since then, by indicating a possibility that these indexes hit the bottom of the correction. If you check the S&P 500 financial sector index you will see that this index is at its low (support) level which was already tested in the middle of August 2009, beginning of September 2009, beginning of November 2009 and December 2009. For many indexes (like in case with S&P Financial Index) the current level is very strong support level and the fact that these indexes had difficulties in following the Nasdaq 100 last week decline is a good sign.

The bad news is that the Nasdaq 100 indeed declined. I have seen many times when the down move or up move was started by one index and then it was picked up by the rest of the market. The fact that the Nasdaq 100 declined strongly and indexes ignored the oversold signals on January 21-22, 2010 tells that we still could wait for another wave of panic selling.

From this point of view I would say that the odds of the end of the current correction are 50/50 and I would say that a lot depends if the rest indexes will get into selloff scared by this week's selloff in the Nasdaq 100 sector.

So far the technical analysis of the charts suggests possibility of the further decline. However, there are many signals that suggest oversold condition and possible support. Some of them are:

1. Low negative MVO on all indexes which would indicate big bearish volume surges and strong panic selling in all market sectors - this usually leads to the shift in the supply/demand balance and reversal. It worth mentioning that the daily volume in the Nasdaq 100 sector on January 29, 2010 is the strongest daily volume in this sector since April 20, 2009.

2. Low Advance/Decline readings on major indexes would suggest the oversold condition and possibility of the reversal as well.

3. High volatility. If you check the ATR(9) on the Nasdaq 100 1-year chart you will see that the volatility on this index is at its March 2009 level (bottom of the stock market crash). On the S&P 500 and DJI indexes volatility have climbed to the beginning of November 2009 level (support of the October's correction).

I would say that the oversold signals are very strong and we may see strong bounce up. However it does not mean that we will have it tomorrow. What I want to say is that the stock market is predisposed for a recovery move up, however it still could slide lower. I may say only that because of the high volatility I would expect to see sudden and strong reversal and it could be tomorrow or it could be in a week. In this case I would only recommend monitoring shorter-term charts as well as some lagging indicators that would confirm a reversal.

Nasdaq 100

Last week in my "Advance/Decline" post on January 24, 2010 I have expressed my thoughts that taking into account volume and advance/decline indications on main indexes (S&P 500, DJI, Nasdaq 100) we could be closed to the bottom of the current correction. However, the past week was negative.

The Nasdaq 100 index was the main player who pushed the market down. The Financial Sector (see S&P Financials), Housing Sector (see PHLX Housing Index) and some other market sectors were flat. The S&P 500, DOW indexes (DJU, DJI, DJT) where flat the first half of the week yet slides by the end of the week under the pressure of the hi-tech companies from the Nasdaq 100 index.

You can hear in the media that the market is upset by the political balance, that Wall Street was worried about Bernanke re-election, that banks were upset by the proposal of the additional taxes, etc. I just do not buy it - those news are not the news that moves market.

Take a look at the Nasdaq 100, DJI and S&P 500 5-year chart. The Nasdaq 100 index during the 2008 stock market crash had smallest loss, there were no big volume surges during the stock market crash and the Nasdaq 100 had strongest recovery after the crash. What does it tell? It simply tells that the main panic was in the financial and transportation sectors. That is why S&P 500 and DJI crashed stronger. The big investors were desperately pulling money out from these two sectors - that is why we may see huge volume during the crash on the S&P 500 and DJI indexes. Big investors were not pulling funds out of the Nasdaq 100 companies - there were no huge volume surge in this sector during the stock market crash. In opposite the big investors were relocating funds from the transportation and financial sectors into hi-tech companies. That is why the Nasdaq 100, Nasdaq Biotechnology, Nasdaq Computer and Nasdaq Internet indexes completely recovered by the end of December 2009 from the 2008 stock market crash.

Now when the Hi-tech sector was at the top, the some of big investors started to take profit out. Does it mean we will see another strong down-trend? Not necessary, for this we need to have strong panic news like bubble in housing sector (2008), internet bubble (2000), etc. Yet, I think the period of the recovery rally on the Wall Street from the stock-market crash could be over and now we could see something like we saw in 2004-2006 - quiet up and down trading with positive or negative bios until somebody make a new bubble.

Advance/Decline

It was clearly bearish week. In my previous week "S&P 500 Chart" post on January 18, 2010 I  have stated my points, why do I believed in to coming correction. The main my point was an increase in volatility. By following my words, we had strong advance on Monday, which only moved volatility level higher, and as a result the strong decline for the rest of the week. On Thursday January 21, 2009 in my "Volume, Volatility and Advance/Decline" again, I have confirm that this does not looks like the end, mainly because advance decline reading did not hit critically low levels by indicating panic selling. As a result, as I mentioned the previous post "the next move down could be even stronger than we had over the last two days" Friday, the last day of the week, brought us even stronger decline.

One more time you may see an importance of monitoring several technical indicators at the same time. In my understanding professional technical analysis combines analysis for the price, volume, volatility and advance/decline data. One may say that he/she can use a price indicator with success. However, without volume, advance/decline and volatility technical analysis I do not believe it is possible to define the current trend stage, to see where the stock market is moving, predict possible strong changes in a trend and be on the alert when market, index or stock may crash. Only combined analysis of volume, advance decline and volatility data may give you one step ahead vision. Those who disregard these data, I believe, sooner or later, will be caught by the week similar to the one we just had.

The same is with indexes. Even if you do not trade indexes (ETFs and other index tracking securities), you have to monitor and analyze them. If your stock was generating buy signals this week and you did not understand why it did not move up, then by taking a look at indexes you would understood that the general bearish sentiment took over the stock market and your stock was drugged by the general stream of the market.

Coming back to the technical analysis, I would like to say that on Friday January 22, 2010, the S&P 500advance/decline readings did dropped to the extremely low level by indicating strong panic selling. We have not seen such low advance/decline reading in the S&P 500 sector since November 27, 2009. The indexes and market may go further down, however, the history analysis (that is done since 1997) shows that at this point we may see a strong bounce and resumption of the up-trend – unless there is a stock market crash (I do not think that this is the case).

Another point is very strong daily volume over the last two days of the week. On those days, the daily volume in the Nasdaq 100 and S&P 500 sectors were the strongest one since December 18, 2009, and on DJI it was the strongest daily volume since December 4, 2009. If we see e decline in volume activity, the principles of volume based technical analysis would suggest that the panic is over and we may see a reversal.

Taking into account volume and advance/decline indication I would not risk by holding the short position right now. The only what I would accept is a trailing stop which would protect earned profit and would give a chance to make more. Yes, we still may see slide down or we may see modest advance and then decline to the new lows. However, I think we are close to the bottom of the recent decline.

I am not stating that we are at the longer-term bottom and over the next few months we will have bullish market as we had after November 27, 2009. We can have it, but it is not necessary has to be the case. We can have just bounce to the most recent high (January, 2010 highs) and then we can have slide again. I do not know what is going to happen in a month. Even if I look on longer-term charts, my view is always adjusted by new coming data and could be completely changed. Right now my technical analysis tells me that we could be close to the bounce up. If this happens, then we will take a look at the next step which, in my case, would be based on the combined technical analysis of price, volume, advance/decline and volatility data again.

Volume, Volatility and Advance Decline

I usually do not make posts during the week. However, I could be nice to say a few words. I think may traders are wondering if they should panic. I would like to drag your attention to several factors:

1. Today's daily volume very high and may push tomorrow indexes up. If this does not happened tomorrow and we will have flat trading or just shallow advance then I think we may see further slide.

2. Volatility is going up - this is a bearish sign. If we see tomorrow strong up move as reaction on today's bearish volume it only will add to the volatility and the next move down could be even stronger than we had over the last two days.

3. Even we saw today big selling volume, the advance decline data on the S&P 500 were not extremely Bearish (extremely low), which would mean it is not a panic selling yet and there is still a room to go down.

S&P 500 Chart

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

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

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

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

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

Mixed Market

Past week was market by a side-way trading on the DJI and Nasdaq 100 indexes - these indexes are basically on the same level where they were on Monday. The S&P 500 in opposite to the rest of the market moved slowly up.

There are several things that I would like to mention. First one is that during the past week, the S&P 500 index up-move was supported on high volume. The S&P 500 index daily volume on January 7, 2010 is one of the highest volumes since November 2, 2009 (the only higher daily volume was noted on December 4, 17 and 18, 2009). The same with Dow Jones Industrials (DJI): the only higher daily volume than the daily volume on January 7, 2010 was noted in DJI sector on November 17 and 18, 2009 (since November 2, 2009). This would signal that there is a possibility that the current side-way with positive bios trading could be close to the end. As a rule high volume during the price advance could lead to the shift in the supply/demand balance when the number of Bullish traders became exhausted.

Second thing that I would like to mention is the low level of volatility. As a rule, if the market would be going for a correction we should be seen increase in the volatility. In opposite we see big decrease in volatility. Actually, the volatility level on DJI and S&P 500 index has dropped to the lowest since October 17, 2007 level. Traditionally, the low volatility suggests stability on the market and dominance of Bullish sentiment. Yet, some analysts characterize strong drop in volatility as a squeeze before some strong events - like a "silence before storm". The good thing is that if the market meant to go into correction, most likely it will not be a stock market crash and majority of traders should be able to spot it.

Third thing that I would like to mention is the strong recovery before the market close on Friday, January 8, 2010. This is not a typical recovery for overbought market...

Last thing worth mentioning, from my point of view, is the high volume surge in Citigroup stock on December 15-19, 2009. This volume was even higher than the volume in C stock during the stock market crash. I usually do not look for stocks, however we all know that the Government has (or had) part of the shares of Citigroup. Was it Government dumping bailouted shares... If yes then what does the Government know that we do not know? If it not the Government then who was dumping such huge amount of Citigroup shares in panic???

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...

DJI

The purpose of technical analysis is to predict a possible future trend movement and, as a rule, predictions are based on the comparing the history and applying the history research results to the current market. This week I would like to show a few charts of Dow Jones Industrial (DJI) index. I selected 10-year and 6-month chart to demonstrate where the main indexes are at the current moment in relation to the longer-term periods.

From the 6-month DJI chart (see the first chart) you may see that the DOW index has been trading in narrow (2.5% wide) corridor for a month. I believe this side-way action has made many traders impatient to see when this pattern is broken and many of them, I think, expect to see strong correction, which would be logical after such strong recovery. However, I would not rush into short trade without setting a tight stop-loss strategy.

If you take a look on the second chart below (DJI 10-year chart), you will see that the DJI index is traded at the level which is inside of the historically defined long-term corridor. In 1999-2001 the DOW index spent 18 months in 8% corridor (between $10,000 and $10,800) and in 2004 we had 12 month of side-way trading in the same corridor.

Can we assume that we may expect to see the Dow index traded in the same 8% corridor for prolonged period of time now as well? What could be a reason that the Dow Jones index was in that 8% corridor for such long period of time? Maybe this is the level where the real value of the companies listed in the DJI index is: the Dow listed companies are not under-evaluated and they are not over-evaluated. If this is true then it would explain side-way trading before and we can expect side-way trading in the same corridor for longer period of time again.

Now, coming back to the 6-month DJI chart, we may see that the DJI index still did not hit the top of this 8% corridor. Because of that, the exit from the current 2.5% side-way trading still could be up toward the $10,800 level. This is why even when I see technical analysis results suggesting down move I would not play short without tight stop-loss.

Chart #1: The DJI Chart 6-month view of the current 2.5% side-way corridor
Chart #2: The DJI Chart 10-year view of the historically defined 8% side-way corridor

S&P 500 Chart

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

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

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

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

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

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....

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.