S&P 500 charts

By following the last post strategy and comparing 1-year and 60-day technical indicators (as you may see in the last post) we may see that 1-year S&P 500 chart is not as optimistic as it was a week ago. As I mentioned the 60-day chart had some indication of the possible correction and we saw the decline.

I like to compare several timeframes. In many cases smaller timeframes help to spot important events that are not visible on the bigger timeframes. At the same time bigger timeframes give more of a general picture of the trend. I believe that technical analysis cannot be based solely on one chart view or one technical indicator. In my opinion, several indicators should be considered as well as several time-frames should be analyzed.

1-year chart would be pointless to use to see when the index may be expected tomorrow, but rather may be analyzed to see when we can expect to see index over the longer term of several weeks. 1-year chart is based on daily bars and basically it’s a set of end of the day technical indicators.

1-year chart

If you take a look at 1-year S&P 500 chart now, you may see that volatility index VIX started to advance and that would not be in favor of the up-move. On the other hand SBV is still positive and still advancing. In addition we still have not seen big volume surges to the price move up. The last big volume surge was in period from November 6 to November 23, 2007 when the S&P 500 index dropped almost 7% (see last red MVO and then later absence of this indicator). Overall this chart is still bullish, however the rising VIX is not a very good point, especially taking into an account the fact that lately the market was very volatile and we saw a sharp trend reversal.



60-day chart

60-day chart has 1-hour bars and may tell when we may expect an index in several trading days. In many cases this chart reveals intraday points that could not be seen on the yearly chart, yet, it still covers the big period of time (2 months) and in many cases allows a more exact analysis of reversal points.

I may say that the 60-day S&P 500 chart is not very optimistic.

There are several factors that make me worry and in my opinion would point to the bigger possibility of the further slide down:
1. The declining SBV shows that the process of the volume accumulation during the S&P 500 slide is not over yet. Only after it starts to rise again, I may say that it hit its oversold bottom. Until then, it’s bearish.
2. We see high MVO on December 21, 2007 that points to the big volume surge during the index move up (see green MVO). It’s no doubt that that day affected support/demand balance and was one of the reasons we have a decline since December 26. Now we may see the beginning of the growing volume during the index drop – MVO is minus 5. It would be nice to see bigger negative MVO before reversal.
3. The difference between Advances – Decline volume show small rise, by indicating that there is a possibility that advancing stocks could become more actively traded then declining stocks. It would be nice to see this technical indicator growing further, which would indicate that more traders started to focus on advancing stocks.
4. The difference between Advances – Decline issues started to rise. That would point that the number of advancing issues started to grow and we close to the possible bottom that may lead to reversal. Yet, the number of the decline issues is still big. This indicator starts to turn bullish (unless we see it starts to decline again) and may indicate the possibility that other indicators may change the mood as well.
5. RSI is again dropping after being above 20 and it shows that there is still dynamic to the downside. Until we see that average gains started to grow this indicator is considered bearish.
6. The stochastic again below 20 indicating move down to the most recent lows. This indicator could be considered as bearish at this moment. It would be nice to see it growing back above 20 to consider it bullish again.
7. The volatility index VIX is grooving since December 21 and this is not very good for up-move.

S&P 500

The up-trend forces the market to move towards the December 11, 2007 high. In general the indicators favors the current recovery, by confirming my past assumption that the recent drop was not more as a correction within the dominant mid-term up-trend, yet, unexpectedly strong correction for me.

The positive sign for mid-term up-trend continuation is the further VIX decline. The fact that this is the last week of the year and most like it will go under the light trading volume makes me optimistic to see the indexes higher. Another fact is (see my 1-year chart below) that during the recovery we still did not see the big volume surges, however, we should not forget that the last correction was not caused by high volume as well… In addition I like the fact that all indexes – NASDAQ 100, S&P 500 and DJI – are moving in the same direction and we do not see a divergence any more when the NASDAQ pushes lover while the S&P is trying to climb up and vise versa.



The smaller 60-day timeframe is less optimistic then the 1-year chart. See 60-day S&P 500 chart below. Yes, while we see the SBV advancing, RSI above 70, Stochastics above 80 and VIX declining we should not worry about decline (correction). On the other side we may see that advance decline lines (issues and volume) started to decline by indicating possible weakness. In addition we may see high volume surge during the S&P 500 index move up on December 21, 2007 which could lead the index into the correction down. This chart would make me assume that we may see the advancing market slowly moving into the flat market with possible correction down.

It’s difficult to say anything about correction now. This chart is still bullish, but it already has some force that may cause the correction. I would continue to monitor this chart to see the development of these technical indicators.

Volatility

Not very nice on the market. After FED rate cut the market crushed, then almost recovered and moved down again. It looks like the indexes are tending to reach the December 4, lows. The short-term technical indicators are not good for recovery, they are more bearish now, by indicating the possibility of the further slide. The volatility started to grow again and it’s not a very good sign.

The market changes very quickly lately and it’s possible that tomorrow the short-term indicators could be completely opposite.



The mid-term indicators are mixed. Some of them started to become bearish. Even I have not seen indication about beginning of the mid-term downtrend the S&P 500 dropped almost 3%. Yes, I expected the correction within the dominant mid-term up-trend, however, very often a correction down generates logical question “Is this a beginning of the new bear market???” So far looking at my charts I may say that I did not see the reasons for a strong move down and I would still expect to see the recovery with continuation of the bull market. Yet, I could be wrong…

As I already mentioned above, the market is become volatile lately and changes it’s mood very fast. The next week is a triple expiration week that could bring additional volatility into the market.

What make me cautious is that when I look at the chart over the last half of year I see strong and sharp downswing and quick recovery rally. It has become custom when the S&P 500 may loose 2-3% over a session and then gain it back in a single session as well. We have not seen such sharp and strong moves. Over the last 6 months we had 8 instances when the DJI dropped for more then 2% and 5 instances when it recovered by more then 2% in a single session. The last time we have seen such strong moves in the period from June 2002 until May 2003. Take a look at chart - it makes to think…. Aren’t we close to something….

Market Crash?

There were 2 reasons for the market to make a strong move down:
1. As I mentioned, the market was ready for correction down.
2. The FED announcement

I’m still under the same mood. I consider it as a correction within the dominant up-trend. I do not think this strong move down would harm the general up-trend, I would consider it as a healthy correction and I would expect to see the recovery soon.

NASDAQ 100 chart

As I expected the market continued it’s up-trend. By taking a look at my indicators I may assume that we may face the increased odds of the correction within the mid-term up-trend.

The NASDAQ 100, S&P 500 and DJI indicators are still strongly points to the continuations of the mid-term uptrend. VIX volatility drops, volume activity drops, 1-year technical studies are bullish.

On the other hand if we look deeper into lover timeframes (30-day and 15-day charts) we may see an increased possibility of the moved down. Those charts do not show changes in the mid-term trend, but may indicate the possible correctional move. The healthy up-trend requires small correction time on time and in this case the up-trend can run longer and higher. Without correctional moves the uptrend could become exhausted very fast.

At this point of time, we may see some oversold 15-days levels that potentially may lead to the correction. Below you may see the NASDAQ 100 chart. The S&P 500 and DJI indicators look similar and little bit more bearish then the NASDAQ 100. Even if we see the correction down, I would not expect it to be deep.

More Up coming?

Mid-term on it’s way to new highs… Today’s recovery confirmed what I wrote yesterday and the day before yesterday.

I would expect to see more up move. So far, I do not see any indication in any of the indexes I track (NASDAQ 100, S&P 500 and DJI) that the mid-term up-trend (see my mid-term post) is exhausted.

The VIX volatility index has declined further by confirming my outlook even stronger. My other technical indicators are bullish as well.

Bull Market?

As I expected yesterday the indexes are lower… however, I would assume the recovery towards new highs. Read my yesterday post.

S&P 500

Overall my mid-term outlook is bullish.

Even if I expect a temporary pullback (continuation of the recent) I believe it should be within the current mid-term uptrend and I assume to see the indexes and all market higher.

If you read my post on November 23, 2007, you should know my main points why I was thinking about coming trend reversal. Now, when reversal occurred and we see a pullback, many traders are asking the logical question: “Is this pullback is the down-trend restoring, or this is just a correction within the dominant mid-term up-trend?”.

Basically we have to decide if the up-rally started on November 27 could be consider as a beginning of the up-trend or it was just a correction and the market will drop even deeper down.

By coming back to the S&P 500 index chart:



Some points that make me assume in continuation of the bull market:

- The SBV advances and this is a good sign to the indexes higher;

- The MACD advances as well and it would be nice to see it run over zero line into positive territory as further up-trend confirmation;

- The Stochastics advances after crossing 20 level. This is very nice for up-trend confirmation;

- The MVO=0 shows no more high volume activity. The volume dropped and there is no more panic selling or greedy buying. After big volume surges during the price move down (red MVO indicates it) we should see up-move until we face big volume surges during the price move up (green MVO);

- The VIX volatility index declines. It would be very good to see further VIX decline as further confirmation of strong up-trend

The DJI indicators show similar picture. The NASDAQ 100 in opposite to the S&P 500 and DJI show smaller volume surges during the crash and when the S&P 500 and DJI continued to drop the NASDAQ moved flat. We still can get surprised by the NASDAQ, however as I already mentioned, based on the charts I use I believe the odds are on the bull market and I expect to see the indexes higher over the mid-term.