What to Expect?

The past week was short (Thanksgiving week had three full trading sessions and one short trading session), yet, quite volatile. Actually, we may consider that since November 18, 2010, the DJI and S&P 500 are in side-way volatile action. The Nasdaq 100 index (mainly because of the swing at the morning on November 24) is only about half of the percent higher.

While the main indexes (S&P 500, Nasdaq 100, DJI and Russell 200) are topping sideway, there are some indexes that are in clearly defined down trend - as an example, see Dow Jones Utilities index that could be considered in down-trend since October 20, 2010 and S&P 500 Financial index that has been moving down since November 4, 2010. Overall, lately we had mostly negative and side-way sentiment.

Taking look at technical analysis from the mid- and long-term prospective we may not see a lot of positive signals. The money flow on daily charts (1 bar = 1 day) is moving down. It is not negative on the S&P 500, DJI and Nasdaq 100, yet, it is close to become negative. After September-October rally up, the indexes could be considered quite overbought. Yes, some traders may say that the correction we had during the second week of November could be enough to release the stock market from its overbought pressure, yet, it is difficult for me to believe in that by the following two reasons:

- Some indexes are still in decline.
and
- We did not have any strong volume volume surges during that correction (with exception on the Nasdaq 100). The correction down does not ends on low volume. In most cases corrections down and down-trends have strong volume surges at the bottom and we have not seen it yet.

Overall, I'm still bearish over mid-term. However, I numerously mentioned in periods of side-way trading that when there is a clearly defined upper and lower line of side-way corridor (as it is now on the S&P 500 and DJI) it is always a good trading strategy to set a stop-loss.

From the short-term prospective, technical analysis is not positive as well. The money flow on 1-min, 5-min, 15-min and 30-minutes charts is negative. It is neutral on hourly charts. I would expect to see negative trading session tomorrow. However, we should remember that volatility is at high levels and we may see strong swings in either direction. Personally, I plan monitoring 15-min and 30-min charts tomorrow.

Financial Sector

I my previous "Technical Analysis" post I have talked about a possibility of correction and we had a small one which does not feet very well into the picture. It's difficult to believe that 2-day small move down on August 5-6, 2008 is the only correction we are going to see after the strong up-move we had in July.

The technical analysis by the end of the week is positive, however, I would not bet on the strong up move. I would rather prefer to see flat market that may turn into stronger than we saw correction down. Still, technical indicators on all 3 main indexes I track (S&P 500 DJI and Nasdaq 100) are positive at this moment and favor further up move.

Mine main concern is the financial sector. If you take a look at S&P Financials, Nasdaq Financial 100 and compare them to the technology and other indexes you will see that for many indexes up-move ended on July 23-27. Many of the indexes are in the sideway corridor since then.Dow Jones Utilities, Biotechnology index and Health Care Index could even be considered in the down-trend since July 27-30, 2009. So, we may say that technology, utilities and other market sectors became overbought and were ready for the correction down in the end of July. Yet, the financial sector continued its rally up and helped to hold the rest of the stock market from the correction. I consider that this is the main reason we did not see a strong correction.

Now, I would like to ask: "What will happen when the rally in financial sector becomes exhausted and financial sector become overbought at least in a short-term?" To answer on this question I would have to find out if the rest of the market is still overbought or the other market sectors become less overbought or even oversold over the last two weeks. If you say that the other sector indexes become oversold or less overbought during 2-week sideway move and shallow decline, than I would say that we may see up move wile financial companies have a correction or sideway trend. If you say that non-financial indexes are still overbought (at least in the short-term) then I would say we may see nice move down.

Personally, I did not see a strong correction on any of indexes (market sectors) and I did not see any volume surges during the price decline over the last two weeks. That is why it is difficult for me to assume that the market is ready for further up move.

Mine main point, beside of mine personal opinion on the market trend, was to show that in some cases it could be useful to take a look at wider range of the indexes. Especially it could be useful when you are in situation when you see Bearish signals, but instead you have sideway market or even modest advance. So, do not be narrow and do not focus on what you trade only. In some cases, when the stock you trade does not move along with yourtechnical analysis it could be not because your analysis is bad, but, because your stock is under an influence of other factors that you do not see yet.

DJU Stocks

The Dow Jones Utility average index (DJU Index) was introduced in January 1929 as a basket of 18 stocks. DJU Index is one of the youngest indexes from three most popular DOW indexes - DJI and DJT indexes were lunched at the end of 19th century. On July 1, 1929, the number of DJU index components was increased to 20. On June 2, 1938 the DJU stocks number was reduced to 15 stocks, where it remains ever since.

Below you may see the list of the Dow Jones Utilities Stocks (DJU Stocks) as of May 2, 2008. This is an outdated listing, yet it may give you the picture of what companies are selected into DJU index. For most recent DJU listing I would recommend visiting the Dow Jones web site

Ticker	Company	Sector	Exchange
AEP	American Electric Power Co. Inc.	Electricity	NYSE
CNP	CenterPoint Energy Inc.	Multiutilities	NYSE
ED	Consolidated Edison Inc.	Electricity	NYSE
D	Dominion Resources Inc. (Virginia)	Electricity	NYSE
DUK	Duke Energy Corp.	Multiutilities	NYSE
EIX	Edison International	Electricity	NYSE
EXC	Exelon Corp.	Electricity	NYSE
FE	FirstEnergy Corp.	Electricity	NYSE
FPL	FPL Group Inc.	Electricity	NYSE
NI	NiSource Inc.	Gas Distribution	NYSE
PCG	PG&E Corp.	Electricity	NYSE
PEG	Public Service Enterprise Group Inc.	Electricity	NYSE
SO	Southern Co.	Electricity	NYSE
WMB	Williams Cos.	Multiutilities	NYSE

The DJI Index Components