Technical Analysis

In my last "Trading Strategy" post on November 8, 2009 I have mentioned a possibility of the indexes (Nasdaq 100, S&P 500, DJI, etc) stacking in a sideway action at their October's high levels. The next day, on Monday November 9, 2009 we still had a strong advance and since then the rest of the week we may see that the indexes have been trading mainly sideway (see the S&P 500 chart below): the S&P 500 index exactly at its October's high levels, the Nasdaq 100 index a few points higher and the DJI index has made new 13-month high.

The S&P 500 Chart with elements of technical analysis:
Selling/Buying Volume Oscillator, Advance/Decline Oscillator, MarketVolume Oscillator,
MACD, RSI, Stochastics, McClellan Oscillator, Average True Range in Percents.

In technical analysis it is common to take a look at the history, and from the history you may see that in majority cases sideway trading at new high level ends with a correctional move down. As a rule during this sideway trading you may see strong bearish signals. If you take a look at the chart (S&P 500 chart above) you would see that on Thursday, November 12, 2009 all technical indicators (except volatility indicators) have generated strongly bearish signals. Yet, on the next trading day (Friday, November 13, 2009) the indexes bounced up from their lower level of the sideway corridor (see the same chart above).

Last week I mentioned: "At that time (in September and October) the indexes have been moving sideways for several trading days … we may see some sideway action at this level again ... If the market starts to move sideways the odds are high that the technical indicators will become bearish." That is what we saw on charts: sideway move and bearish signals on Thursday. However, in the same post I have brought some reasons why I would not consider these bearish indications as strong signals, and why I would rather consider waiting. There were two main reasons why I would avoid trading short at that moment: a) no high volume during the up-move and b) no increase in volatility.

Absence, of high volume during up-move indicates that this up-move was not strong enough to generate greedy buying when investors start to rush into the stock market with the hope to jump into "the last wagon of the running train" - as a rule such action leads to a misbalanced in the supply/demands and at least to the short-term correction down. Absence of increase in volatility indicates that the current sideway move did not generated any panic among traders which suggest there were no increase in the number of bearish traders as well. These two reasons kept me last week from trading short, and the same two reasons still keep me out of it.

Right now technical indicator on the major index charts (S&P 500, DJI and Nasdaq 100 charts) are mixed. You may see Bullish indicators as well as some indicators remain bearish:

 - SBV (Selling Buying Volume) Oscillator is moving sideways at this moment which is a neutral sign. Yet, the bullish volume (accumulated since November 4, 2009) still could be considered as a force which is strong enough to push the stock market down into a correction.

 - The absence of the Bullish volume surges (no green MVO) suggests the higher odds of further up move.

 - The advance/decline oscillator is almost flat, yet, it moves up from its most recent low which could be considered as modestly bullish signal.

 - The same as A/D Oscillator, MACD is almost flat, yet, it is moving up from its recent low which is bullish sign, on the other hand it is still in the negative area which could be considered as bearish sign. Overall, MACD could be considered bearish with tendency to become Bullish.

 - General RSI direction is down and this is bearish sign in technical analysis.

 - General Stochastics direction is up and this is a bullish sign in technical analysis.

-  McClellan Oscillator is still in the negative territory which is bullish, yet, it is very close to cross the center (zero) line which in technical analysis is considered as a "Buy" signal.

 - ATR remains on the same level and this is very nice indication (as already mentioned above) of bullish sentiment."

Overall, I would consider technical analysis mixed at this point of time. There is still an existence of a danger of a correction down. At the same time, some technical indicators push me to believe that even if we see a correction it should not be a very strong move down, unless I see at least changes in volatility sentiment (increase in volatility). At the same time indication of resuming of up-move are not strong enough to be strongly Bullish.

I am not stating that I am always right, and that my technical analysis is perfect. I am just trying to share my thoughts about current stock market sentiment and possible development of a future market trend. It helps me to put my thoughts in the order and I hope it may help somebody in avoiding a mistake that can become "financial suicidal". I would rather recommend doing your own technical analysis and checking all my statements by yourself before even considering to follow them.

Short Analysis

I have missed my Sunday post, therefore I'm writing during the week. Coming back to my previous "S&P 500 Technical Analysis" post on September 20, 2009 I may say that since then we have had the market (Nasdaq 100, S&P 500 and DJI indexes) moved as was predicted: sideway trading first (from September 21 until noon on September 23) and then a correction down.

Looking at the price movement it looks like the correction down is coming to the end – the indexes are moving up from their September 25 lows. However, taking a look at technical indicators I do not think that many traders see positive and promising signals. Right now my technical analysis on hourly charts shows following:

1. SBV (Selling Buying Volume) – bullish on the Nasdaq 100 and DJI and neutral on the S&P 500;
2. MVO (MarketVolume Oscillator) – the same as SBV bullish on the Nasdaq 100 and DJI and neutral on the S&P 500;
3. Advance/Decline Oscillator could be considered Bearish, yet close to the oversold levels on all main indexes (Nasdaq 100, S&P 500 and DJI);
4. MACD is neutral by moving basically sideway;
5. RSI and Stochastics reading are mixed, yet, I would say that they are more Bearish than Bullish;
6. McClellan Oscillator started to decline, yet, it is still positive.

As you may see the technical analysis is mixed at this moment and may suggest recovery from the correction as well as further developing of a deeper correction. The main point that makes me worry, despite positive volume signals, is that volatility is increasing. You may see that ATR (Average True Range) and VIX index are climbing up and this is a bearish sign.

As a rule in case like we have now (mixed technical analysis results) a good decision could be waiting for more clear signals. Right now the indexes clearly defined the resistance line: for S&P 500 and DJI indexes high levels on September 17, 18, 22 and 23 and for Nasdaq 100 high on September 23. At the same time we may draw some support line that would go through September 25’s low. Furthermore, conservative way could be waiting for indexes breaking one of these lines and checking the technical analysis at that point.

S&P 500 Technical Analysis

A week ago in my "Technical Analysis" post on Sunday September 13, 2009 I have pointed to a bearish sentiment and overbought signals on majority of technical studies. However, in the same post I mentioned: "As a rule, when market comes to some overbought level it is stuck at this level for a couple of trading sessions and moves side-way before a decline." As you may see the history analysis helps in making a correct decision not rushing into a short trade even in situation when technical analysis is in favor of a correction. In one trading session, on Thursday September 15, 2009 the stock was back in the up-trend. On that day (September 15), all technical indicators on the Nasdaq 100, S&P 500 and DJI turned from bearish into bullish.

Now, by the end of this week we have a similar picture. Again, many of technical studies on the Nasdaq 100, S&P 500 and DJI charts point to overbought (short-term) levels and bearish sentiment. And again, I would recommend taking look through the history of these indexes. You should see that in the resistance (before a correction) we have a few sessions of sideway trading. In opposite an exit from a support is sharp and strong. This is not a 100% rule, yet, I would say that the odds of having a sideways trading in resistance are quite high.

The last two weeks’ rally up (from September 3, 2009) has push the stock market and indexes into overbought condition ( for a short term at least). A correction down would be healthy for the market. However, a possibility of sideway trading still exists and personally I would watch the Nasdaq 100, S&P 500 and DJI indexes for stronger bearish signals.

Right now the technical analysis applied to hourly charts shows following:

1. High volume surge on September 15-16, 2009 during the price advance (see big green MVO) suggests a possibility of reversal down.
2.  The RSI (Relative Strength Index) and Stochastics have dropped below 70 and 80 lines respectfully and both these indicators are in decline which is a bearish sign.
3.  The Advance/Decline Oscillator declines and is close to the center (zero) line. This could be considered as a bearish signal as well.
4. The MACD moves up, yet, this move is almost flat. Even this indicator is bullish, it’s not a strong signal and it could turn into bearish signal very easily.
5. The SBV Oscillator declines slowly which indicates bearishness, yet, it is still has high positive readings. It would be nice to see it dropping closer to zero line before considering it as a strong bearish signal.
6.  McClellan Oscillator is neutral on the Nasdaq 100 and S&P 500 indexes - it moves flat at a zero line. However, McClellan Oscillator applied to the DJI index is positive (above zero line and in flat move).
   

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

Technical Analysis

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

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

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

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

Overall, taking a look at technical analysis applied to the hourly charts ( see my previous posts for hourly charts setting) I cannot say that the market is very positive. In opposite, there are many signs that suggest a correction down. However, we have just had a strong rally. Taking look at the history I do not see many occurrences of sharp reversal after such up-move. As a rule, when market comes to some overbought level it is stuck at this level for a couple of trading sessions and moves side-way before a decline.

Short Technical Analysis

Last week on Sunday August 16, 2009 in the "S&P 500 Analysis" post I have discussed the possibility of correction down. We had strong move down during the next 2 days (Monday and Tuesday). However, that was the only decline we had. The rest three days of the week we had strong recovery. It was strange exit from the correction. As a rule an end of a decline should be market by a volume surge, however it did not happened in this case. Still, on Wednesday majority of technical indicators became bullish and on Thursday's mooning all studies you may see on my chart snapshots (see my previous posts) were strongly bullish.

Now, the indexes run over the upper line of the sideway corridor they were in August. For many traders this could signal a beginning of a new possible up-move. As I mentioned before we are in the period when all news and reports are positive simply because the claimed at the end of 2008 expectations for 2009 were purposely lowered in fear of recession continuation. As a result, this positive news could continue to push market higher.

However, this is not my job to analyze news and all other economical factors that drive the U.S. economy. I do technical analysis and I follow technical indicators. If the results of technical analysis suggest up, I say "Up" if technical analysis is bearish I say "Down". In some cases there could be unexpected turns, however, for such occasion w have trend-following technical studies (lagging indicators) and we have higher timeframes that help us to define when it’s time to cut losses.

So, coming back to the charts and technical analysis I may say that by the end of this week the majority of indicators I use are still Bullish:
 - advance/decline oscillator is at high positive levels and is moving up;
 - RSI is above 70;
 - Stochastics is above 80;
 - McClellan Oscillator is almost flat and is at high positive level;
 - SBV Oscillator is positive and is at high levels which is a Bullish sign. However, it started to decline which shows some weakness;
 - MACD started to decline as well, yet it is still positive.

So far the only danger for the further up-move is high MVO on August 19-21, 2009 in the Nasdaq 100 sector and on August 21, 2009 in DJI sector. High MVO indicate high volume activity (volume surge). Volume surge during the price advance indicates greedy buying and strong greedy buying may reverse a trend. However, we do not see high MVO in the S&P 500 sector which is a positive sign.

Overall, my technical analysis suggest higher odds of further recovery, however, I would closely monitor charts over the next week. If I see flat market again I would say we could be back where we were in the first half of August – consideration of a possible strong correction down.

S&P 500 again

Nice week of positive market we had. The indexes reacted by a strong rally up on the big volume surge during the price decline on July 8, 2009. Now, we may see some picture opposite to the one we saw a week ago. Now, we have nice volume surge during the price advance (see green MVO).

Basically there are two main factors that should be paid attention to: high volume during the recent advance and the resistance line that is hit by the indexes (S&P 500 and DJI in particular).

Right now the indexes are at the same resistance levels they were in beginning of June, 2009. I will repeat what I mentioned in my previous “Volume Technical Analysis” post on July 15, 2009 that the current resistance line could be extended back to December 2008. The indexes spent some time moving around this line and then reversed down in December 2008 and in the begging of June 2009. Furthermore, this level could be considered sensitive to many long- and mid-term traders and there are good odds we may see indexes moving sideway at this level again with possible bounce down.

Second factor of high volume surge during the price up-move witnesses that the there is a possibility of overbought market (at least in short-term). This should halt the recovery and possibly may push indexes down again.

Regarding other technical studies you may see on my chart (see below) I may say that

1. The SBV Oscillator readings are still at high positive levels which is a bullish sign. However, we started to see some changes in the SBV direction, which would point to the beginning of changes in the money flow;

2. I have already mentioned about big green (positive) MVO that points to the high volume surge during the price advance. This volume surge may cause changes in the supply/demand balance and as a result it may lead to reversal.

3. Advance/Decline Oscillator is in the declining mode and is Bearish (it started to decline on Friday). From this we may say that, now, investors (traders) are not focused on the advancing stocks as they were in the beginning of the week. If the A/D Oscillator continues to decline into negative territory we may say that traders become more attracted by declining stocks.

4. RSI and Stochastics suggest overbought market. However, they are still bullish by moving above 70 and 80 lines respectfully.

5. McClellan Oscillator crossed zero line on its way down and this is a Bearish signal.

As you see, overall, my technical analysis is not Bullish. It is difficult to say that it is Bearish either. I would say that in short-term the indexes are overbought and we may see a correction down. Yet, some of the technical indicators are still Bullish and we still may see some sideway- and up-move prior to a correction. If the indexes (S&P 500, Nasdaq 100 and DJI) go flat I would watch the sentiment closely, since it may push sentiment into bearish mood.

S&P 500 Technical Analysis

With exception of Monday, the past week could be considered positive. Yet, by the end of the week the indicators make me somewhat cautious about the further trend. The correction we had from June 12, 2009 until June 23, 2009 could be considered as the strongest down turn since March 9, 2009 (since the market is in the longer-term up-trend). The high levels the indexes hit in the beginning of June became a strong resistance barrier. The Dow Jones Industrials (^DJI) has been fluctuating around the same resistance level for a month (from December 1, 2008 until June 9, 2009). The S&P stuck close to its current resistance in December 2008 as well. Yes, the Nasdaq 100 index is one of the indexes that recovered stronger, but we should remember that the Nasdaq 100 represent non financial companies and was less affected by 2008 stock market crash.

So, we may see that June’s high levels are quite sensitive and even if indexes continue to move higher by recovering from the recent correction I would consider that the odds are pretty good that we may see them stuck at the marked resistance level again. I would say that we may even see second bounce from there (this is just my opinion based on my personal technical analysis).

Despite the recent up-move (from June 23, 2009), at the current moment my longer-term technical analysis is not very optimistic. For a longer term sentiment I usually refer to the daily charts: from 1-year (1 bar = 1 day) to 3-year (1 bar = 3 days). I do not give snapshots of these charts in this post, however, I will try to post them in one of my next posts. All these charts are Bearish at this moment: I see negative money flow, I may consider that the market become somewhat overbought after the strong 3-month recovery rally (March-May 2009), average daily trading volume is down which means that the first wave of Bullish investors who push market up become exhausted, etc. Overall, my longer-term technical analysis is Bearish. However, on the other hand, we should not disregard the fact that during the recent correction down the main indexes (S&P 500, DJI, Nasdaq 100, Russell 2000…) were released from their overbought conditions at least partially which could keep the market and indexes at the current high levels.

In a shorter term – see S&P 500 index hourly chart below – we may see some sentiment changes towards bearish mood: SBV moves down, high green MVO (volume surges during the price up-move), declining Advance/Decline Oscillator, declining MACD and declining RSI. Stochastics is still could be considered positive and McClellan Oscillator is still above zero line which is a positive sign as well. In summary, I would say that my shorter-term technical analysis results point to the possibility of slide. Again (as I mentioned before) this is intraday chart and should be monitored during the trading hours for possible changes in the sentiment and trend.

Chart: S&P 500 index 60-day view (1 bar = 1 hour)

S&P 500 Chart

For several weeks I have not been referring to any chart in my posts. I assumed that, whoever reads my blog may know from my previous posts charts setting I usually discuss and may simply open these charts. Now, I think, it is time for me to make chart snapshoot again. At the end, I believe it is easier to follow my posts and points of my technical analysis by looking at the chart (majority of people, including me, visually accept faster) than just simply reading the words.

Below you may see the S&P 500 60-day chart (1-bar = 1 hour). Some of traders call it 60-day chart because you may see 2 months of data on screen, some of traders cal it hourly charts because one bar covers one hour. I give both references for earthier understanding.


On the S&P 500 chart (Nasdaq 100 and DJI chart similar at this time) above you may see the standard set of my technical indicators for hourly charts. As you may see I do not rely on one indicator and even I consider volume as one of he most powerful tools I do not rely solely on it. Basically I have three groups of indicators on this chart: volume based, price based and advance/decline indicators. In this way I believe I cover all aspects of the trend analysis.

At this point of time my technical analysis of the hourly charts tells me that the market could be considered overbought in the short-term and we may expect to see some correctional movement down. By shortly summarizing the indicators above I may say that:

• High green MVO, RSI above 70, Stochastics above 80 - all of these suggest the indexes are overbought in short term (short-term because it is not high time-frame chart).
• Declining SBV, MACD and McClellan Oscillator point that the sentiment started shift toward the Bullish mood.
• RSI and Stochastics are still above 70 and 80 respectfully by still pointing to the Bullish sentiment.

From these three points above I may assume that we may expect to see a short-term correction down because the indexes could be considered overbought and we already started to see some changes in the sentiment from Bullish toward Bearish. However, I would like to see some flat market before. It is unusual to see sharp reverse down after strong up move. As a rule market (indexes) can have sharp reversal in support, yet, in resistance it is common to see several sessions of flat market. At the same time the SBV is still high and McClellan Oscillator with MACD did not crossed zero lines - these as well tells me that we may see some flat price movement before correction.

From the short-term analysis prospective I would recommend always consult higher timeframes (it is always a good trading strategy to analyze several timeframes). If you apply the same technical analysis to daily charts (1-year chart where 1bar = 1 day and 3-year chart where 1 bar = 3 days) you may see that in the longer term the market is still strongly oversold and longer-term sentiment is strongly Bullish. Because of that even I expect to see correction down I would not expect it to be very strong but rather a short-term move down within longer-term recovery. I even assume that because of the strongly oversold longer-term market (indexes) the shorter-term overbought levels could be ignored and there is a possibility of further up-move.

Overall (do not confuse you) I would say that my technical analysis suggest recovery in the longer-term, yet possibility a correction in the shorter-term.

Technical Analysis

Since I did not make any reference to the charts and technical indicators in my last "DJI Volume" post, I decided to make a short additional post.

I already mentioned in my previous post (a few hours ago) that now, I would not like to be on the place of those traders who are in short position, either it sold short stocks, or bought put options... I think it expresses my opinion very clear. This statement is based on the same technical indicators I always use and it mainly based on the huge volume surge seen on Friday in the DJI sector which on my opinion could mark another bottom and reversal.

In more details my technical analysis applied to the set of technical indicators on the 60-day chart (1 bar = 1 hour) tells me:
1. SBV started to advance - positive sign, yet it would be nice to see further advance as confirmation of recovery.
2. A lot of read SBV - suggests strongly oversold market
3. Big red MVO - points to strongly oversold market and extremely high panic selling which may lead to strong reversal.
4. MVO did not started to advance yet - means that we still have a lot of traders who sells in panic or who sell short in greed.
5. Advance/Decline Oscillator still declines - which reveals dominance of negative sentiments.
6. Advance/Decline shows a lot of red - suggests strongly oversold market.
7.MACD almost flat - more as a neutral sign.
8. Stochastics advanced above 20 after being below this level - positive sign that show that market is moving away from its low levels.
9. RSI advanced above 30 after being below this level - positive dynamic movement.
10. McClellan Oscillator is on up-side after crossing zero line - considered as positive signal.

Sorry for not showing a chart, I think you may always take a look at chart on marketvolume.com - chart setting could be seen on chart in my "DJI Chart" post (look for indicators setting in the chart legend).

Dow Chart

Last week (see my "S&P 500 Technical Analysis" post on January 4, 2009 ) I mentioned of a danger that could come from high volume expressed in high MVO in period from December 30, 2008 until January 2, 2009. At the same time I mentioned that I would expect to see a few flat session before the market may reverse. This exact scenario was played last week: Monday - Tuesday we saw almost flat market which pushed previously bullish technical indicators into bearish and neutral. If on Friday, January 2, 2009 my technical analysis was bullish, then by the end of the trading session on January 6, 2009 the same technical indicators on all three indexes I track (Nasdaq 100, DJI and S&P 500) were bearish (see chart below): SBV, MVO, Advance/Decline Oscillator and McClellan Oscillator - Bearish; MACD, Stochastics and RSI - from neutral to Bearish. As a result the rest of the week we had down market.

Now, at the end of the week my technical analysis still points me to the dominance of the bearish sentiment on the stock market: SBV is still moving down; Stochastics and RSI are still below 30 and 20 levels respectfully. Advance decline oscillator and McClellan oscillator are flat and may indicate the coming possibility of changes in the sentiment, yet, I would not bet on this until I see McClellan Oscillator crossing zero line and Advance/Decline Oscillator moving higher. It would be nice to see negative MVO (volume surge during the price decline) before reversal as well, yet, it's not necessary - we did not see red MVO before reversal on December 12, 2008 and December 29, 2008 and I may assume that we may see reversal without it again.

So, what is going to be next week? - I do not know - I am not an investment advisor and I do not want to be the one. Several years ago I pass the test and did have a mutual funds investment license. At that time I could be considered as an investment advisor. Yet, I left that business after I discovered that majority of investment advisors know nothing about stock market and investments and their main job is not to help people with investments but sell products of the financial institutions. After, I was put in the "shame corner" by my boss for selling to one client what he needed instead of what would give bigger commissions I decided that it's not for me. Now, I can give you only one advice - do not trust anyone in investment business, not even me. If you want to invest you will invest your own money and you have to learn by yourself what is good and what is bad.

Index Analysis

Four weeks ago in my DJI post (on 11/23/2008) I have posted the following chart with statement that the market has set new support. I would like to point again to the same DJI chart:

After 10/10 support (October 10, 2008 support level) the stock market and indexes did moved flat for a month until November 5, 2008 when they started to decline again. Now, it is a months after 11/21 support (support on November 20-21, 2008) and the logical question could be "should we expect to see reversal soon since there is a possibility that the stock market has stepped back from it's November's extremely oversold levels and accumulated some Bullish volume in December?"

We had first strong volume surges with  setting a support level on September 18, 2008, second on October 10, 2008 and the third one (most recent) on November 21, 2008. Each of this volume surges during the index declined pushed the indexes into oversold condition and every  time market become oversold stronger and stronger. If on September 18, 2008 the market reacted on high volume by strong one-day rally up (about 10% in a single session), then after 10/10 bottom (market was stronger oversold) the reaction on high bearish volume was expressed by 1-month up and flat move with about 16% recovery. The last time, on November 21, 2008, when after high volume surges the stock market has become oversold even stronger then on 10/10, the market respectfully reacted stronger - we have one month up move and indexes (S&P 500, Nasdaq 100 and DJI) with 22-25% recovery.

The market is still could be considered strongly oversold because of the high Bearish volume on 9/18, 10/10 and 11/21, yet, I would weighted it as longer-term oversold condition. Over the shorter term we see some overbought levels - should not be a surprise with more than 20% up over a month - which may push indexes and whole market down, not necessary into another crash, yet on my opinion we may see an attempt to retest 11/21 bottom.

I would never try to guess what is going to happened to the market in several month or in a year - this is a job for fundamental analysts. What I do: I track if there is possibility of trend changes in the shorter term and then I monitor these changes for a possibility of developing them into stronger recovery or stronger crash. Right now, I see that indexes (S&P 500, DJI and Nasdaq 100) signal a possibility of the move down (keep in mind that I could be wrong, I'm just an average trader). The S&P 500 chart below explains my worries (Nasdaq 100 and DJI charts have similar look):

Last week, in my S&P 500 Analysis post I mentioned that red MVO (volume surge during the price decline) may push the S&P 500 index up (we had up-move this week). Now, my main concern is that green MVO (volume surge during the price advance) may push the indexes down. The rest of technical indicators, including Stochastics, RSI (Relative Strength Index), SBV, McClellan Oscillator are bearish on this chart as well.

S&P 500

In my previous "DJI Chart" post on November 2, 2008 (a week ago) I have described the possibility of the slide. The market was overbought in short term at that time and during this week we shad two session of the slide (November 5-6). I think some trader are worried if this slide is going to continue to the 10/10 (October 10) lows.

I would repeat myself that over the longer term I'm still bullish and this slide did not change any of the technical indicators I use on the higher-timeframes (1-2 years charts) - all of them are still bullish and all of them point to the higher odds of the further recovery. Yet, the question about the retesting of the 10/10 lows is not about longer term. I would rather consider it as a short-term question.

In short-term, the technical analysis applied to the 60-day chart (1 bar = 1 hour) is more bullish than bearish and I would expect to see short-term up move within the next few sessions. If a week ago I saw the short-term overbought indexes, today I see short-term oversold market.


The technical analysis applied to the S&P 500 index above is the same as it would be applied to the Nasdaq 100 and Dow Jones Industrials indexes. At the current moment all three main indexes show similar sentiment:

a) We see Bearish volume surge - red MVO which already equal to zero - This Bearish volume may push the indexes up;

b) Advance/Decline oscillator is rising and is above to cross center line. This suggest that investors are moving towards advancing stocks - they are buying;

c) MACD is moving up which  is indication of Bullish trend;

d) RSI and Stochastics moved above 30 and 20 levels respectively which is bullish sign as well;

e) McClellan oscillator started to move up which is a good sign for up-move, yet it still below zero line which indicate bearish market;

f) SBV show small advance, yet, this advance is too small to consider this technical indicator bullish.

Overall, in short-term I would expect an up-move rather then further drop towards the 10/10 lows. Again, the market is still very dynamic and volatile and today's bullish sentiment can reverse very fast. Because of that I would recommend monitoring charts every day.

S&P 500 Chart

As I mentioned in my previous "End of the market crash" post on October 13, 2008 in majority situation after the strong bounce up we may see the attempt of the market to retest the support levels and later this week we witnesses such drop down when on October 16, 2008 the Nasdaq 100 hit the October 10 lows and the S&P 500 and DJI indexes went down close to it. Yet, after that we saw bounce up again and the indexes are still on its way up. I think the question that I put last week "if this is the end of stock market crash" is still not answered. The same as before I would state that October 10, 1008 has put serious point to consider the trend reversal. We had huge volume at that day, the market is in extremely heavy oversold condition, strong rebound has confirmed that market can run up very fast very strongly... All of this make me to consider the high possibility of strong reversal and if not the end of the stock market crash then at least strong mid-term up-trend. Yet, as I mentioned before, I would like to see that the October 14, 2008 highs are broken and the indexes are moving up above them as confirmation of that. Still, for long term investments (401k) I consider that this is good time to buy on such volume when the indexes are so deep down. Even if the indexes will go lower then on the high volume at better position you will buy again. Over the long term the returns from the multiple positions should be rewarded.

Going back to the short-term chart, in my case it is 60-day S&P 500 chart, I may say that the technical indicators are more or less positive and my technical analysis tells me that we still may see some up move. It's difficult to say where the market is going to be in a week. I such volatile market (VIX Volatility index is above 60) we may see strong change in either direction any time. At such time it's especially important to monitor charts on the daily basis. For those who cannon watch charts daily, yet, still would like to make short-term trades I may suggest one thing only - stay out of the market until the volatility is down, your time will come

The S&P 500, Nasdaq 100 and DJI indexes show similar pictures. The reading of the technical indicators on all these indexes are pointed in the same direction

 - SBV, MV, Advance/Decline Oscillator, RSI and McClellan Oscillator are Bullish
 - MACD and Stochastics are bearish

Overall, more points are in the favor of the further recovery.

S&P 500 Chart

A few numbers:

• DOW is more than 4,500 points down from its October 2007 high and only 2,100 points above March 2003 low;
• S&P 500 is more than 500 points down from its October 2007 high and less than 300 points above March 2003 low;
• Nasdaq 100 is mote than 800 points down from its October 2007 high and about 500 points above February-March 2003 low;

Pretty scary... Yet, I'm optimistic. It's going to be up and taking look at volume surges I saw during this crash I would expect to see a recovery to the August 2008 levels at least. The question is when it will go up. The answer is "sooner or later, but not during this week to that levels for sure" (smile). But seriously, I do not expect the indexes to recover to that levels even by the end of this month, on the other hand anything could happened and that is why it is good monitor the market on daily basis. I believe many traders my find this time good for long-term pension investments by using 401k to buy some stocks on monthly basis (using dollar cost averaging).

For short term speculative investments I may suggest only one - protect your profit. As soon as your position is in profit it is good to have trailing stop set. If you are today in winning position, in such volatile market without this profit protection you can be in losing position tomorrow very fast...

So, what my technical analysis tells me.


This week I decided to use the same chart explanation table I used in my "Nasdaq 100" post on September 6, 2008

	Nasdaq 100	S&P 500	DJI
SBV	Bullish - Moving up
MVO	A lot of red MVO and absence of green MVO suggest highly oversold market
	Bearish - MVO still negative. only when it becomes zero we may say that the volume went down and panic selling is behind		Bullish - MVO=0 and the last MVO was negative
AD Osc.	Bearish - Moving Down
MACD	Bullish - Moving up
RSI	Bullish - Just moved above 30
Stochastics	Bullish - Just crossed 20
McClellan	Bearish - Negative, moving sideway or down
VIX	VIX (Volatility index) is above 50 indicates extremely oversold levels. Yet, it does not move down and could indicate bearish sentiment

Keep in mind that technical analysis based on the 60-day chart cannot be used for mid- or long-term trend. The usual trend that could be expected from the 60-day chart analysis would not last longer than 5-10 days in the normal market. In the high volatile market we have I would not bet beyond 1-2 days from now. Again in such volatile period it is very important to monitor charts constantly - the sentiment changes are very fast and rapid.

DJI

Ok, as I mentioned in my last "Index Volume" post on September 16, 2008 we had it - sharp and strong recovery. Just in 1.5 trading session (from noon of September 18, 2008) the Dow Jones Industrials run up about 1000 points!!! I expected to see the indexes at September 12 levels and they (DJI, Nasdaq 100, S&P 500) are there.  I've already pointed to the meaning of the huge volume during the price slide in my "DJI Volume" with bringing to attention (in the "S&P 500" post) similar occurrences of the high volume surges in the past and the price reaction on such huge number of transaction.

I do not think there were a lot of traders who was able to open a long position over the last 1.5 trading session. I believe many traders under the media negative pressure were still trying to play short by using this recovery as a possibility to open a short position and then desperately were monitoring and thinking why the market does not go down with all these bad news... I've already mentioned my "friendly" feeling to the media "I do not trust them!!!" - They always look right by explaining the stock market after the fact. When oil goes up and the DJI drops they tell us that the investors are disappointed by high oil prices and on the next day when oil drops and you expect that investors should be happy you see another day of the DJI slide and guess what, again media is right by explaining you that investors were disappointed by bad situation in financial sector...

As I already said I'm ready to pay for a year of service that provides the volume for indexes in order to have just one such beautiful moment. With volume indicators I have fun by watching the news and their explanation of the market. Stock market is not as it was 10-20 years ago. Look at the NYSE volume 10 years ago - we have now much more speculators in the market and it cannot be ignored... 

The market is always described by price and volume and using technical analysis based on the price indicators only I consider as watching a TV with half of the screen covered. The same with volume I believe it's wrong to base the technical analysis solely on volume. There should always be at least one price based and one volume based technical indicator in any trading strategy, which one should be main and which one confirming it's another point. Only analysis of price movement together with volume flow may give the clear picture of the stock market processes.

So, we see the DJI, Nasdaq 100, S&P 500 and other indexes above the September 12th levels and the question is now "Will it run further to the August 28 and August 11, 2008 highs?"


By looking at the chart above I may say that we have great deal of the volume accumulated during the recent stock market crash, I believe that the market is still heavily oversold and it was not released from this oversold stage over 2 nights (since Thursday) it still has power to run up and so far all the technical indicators I use are positive:

• SBV is on its way up
• MVO show big oversold power
• Advance-Decline is rising
• RSI is rising to the 70
• Stochastics is above 80
• McClellan Oscillator is rising

Mainly based on the MVO I would assume that the odds are very good to see the indexes at August 11, 2008 highs.

Nasdaq 100

In my last "Nasdaq 100 Chart" post I have mentioned about the desire of the Nasdaq 100 index to compensate in recent decline what it missed in June-July 2008 decline. I've already emphasized in July (see "DJI" post from 07/20/2008) that the Nasdaq sector was not as oversold as S&P 500 and DJI indexes at that time. It looks like now the Nasdaq stocks decided to catch in the recent decline what was misses in July. While the S&P 500 and DJI indexes were ready for the recovery the Nasdaq 100 index was still behind. However, now (over the last week) we see strong volume surges in the Nasdaq sector. The volume during the decline indicates panic selling and high volume surges during decline indicate that some traders decided to satisfy the demands of the panic sellers by buying huge amount of shares. Keep in mind that Nasdaq 100 index has been in decline since August 16, 2008 while the S&P 500 and DJI only since September 2, 2008 (only 4 trading session).

Now After this week I see very good chances for a recovery. By looking at the 1-year index charts I may assume that the Nasdaq 100 index has become oversold as well and now all three indexes have power to move up. Yet, I could be wrong and I do not recommend following conclusions of my technical analysis. Each trader has to do his/her own homework...

Coming back to my favorite 60-day chart, I see good odds of bullish market, at least at the beginning of the coming week (for the rest of the week I would analyze the same chart during the next week).

I have selected the Nasdaq 100 chart again since (on my opinion) this index was the major engine behind the recent decline. The S&P 500 and DJI indexes technical indicators look similar. This week I decided to set a table of these three indexes which summarizes used by me technical indicators and results of my technical analysis:

	Nasdaq 100	S&P 500	DJI
SBV	Bullish - Moving up
MVO	Bullish -Big volume surges. Now, MV=0 and this is a positive sign as well	Bullish - Big volume yet not as big as in the Nasdaq 100 sector
AD Osc.	Somewhat Bullish - Moving up, yet still at low negative levels
MACD	Somewhat Bullish - Moving up, yet still at low negative levels
RSI	Bearish - Still below 30	Bullish - Just moved above 30
Stochastics	Bullish - Crossed 20 and moving up
McClellan	Somewhat Bullish - Negative and far from center line

Nasdaq 100 chart

I mentioned in my previous "Panic Selling..." post that the Nasdaq 100 index was not as oversold as S&P 500 and DJI indexes during the recent crash in July 2008 by pointing on some bearish sentiment in the Nasdaq 100 sector while the DJI and S&P were more optimistic. Over the last two session we continued to see the power pressure of the Nasdaq companies which continued to push the stock market down. The question is for how long.

The Nasdaq 100 index is most dramatic over the past couple of session and that is why I brought out the Nasdaq 100 60-day chart to see what is the tendency in the changes of this index sentiment changes. The same as before the S&P 500 is not as bearish as the Nasdaq 100 and the DOW(30), I would say, even somewhat bullish. Despite the negative Nasdaq pressure the Dow Jones managed to end today's session even with shallow gain.


Summarizing the Nasdaq 100 technical indicators on the chart above I may say that

• SBV is still bearish - moving down (neutral on S&P 500 and positive on the DJI);
• We see high volume surge during the last two trading session slide (high negative MVO) which is a good sign for possibility of the coming reversal. Yet MVO is still below zero line (the same on the S&P and DOW);
• Advance/decline oscillator is more neutral by moving close to the central line (similar on the S&P and DOW);
• MACD started to move up which would favor the reversal (S&P 500 and DJI MACD bullish as well);
• RSI is at 30. Should it drop below it would point to the possibility of the further slide. Should it move up it would indicate bullish sentiment (S&P and DOW RSI are somewhat bullish);
• Stochastics is below 20 - bearish sign (S&P and DOW Stochastics are bullish);
• McClellan Oscillator reversed and started to move up, yet it still below zero line.

So, I see some negative signs in the Nasdaq 100 index. Yet, at the same time I see some technical indicators started to change from bearish into neutral and from bearish into bullish, which could point that we could be close to the bottom. It looks like the S&P and DJI are ready to go up and they wait for the Nasdaq companies only.

DJI Chart

Nice week. From y last "S&P 500" post you may see that I expected some correction and we had it. Yet, the longer-term up-trend pushed the stock market higher by the end of the week. (refer to my 1-year technical analysis in my "New Highs/Lows" post on August 12, 2008 and my "DJI" post on July 20, 2008).

My outlook over the longer-term stays unchanged. The same as before I believe that the high volume surges in June-July 2008 have power to push the Nasdaq 100, S&P 500 and DJI indexes and the whole market much higher.

With shorter-term, I only may give one advice to monitor charts on the daily basis. For those who analyze charts, the Monday-Tuesday slide should not be a surprise, as well as Thursday-Friday recovery was clearly defined by the technical indicators. If today my 60-day technical analysis points to the higher odds of the further recovery (see chart below), it does not mean the the same technical indicators will be bullish the whole next week. The technical indicators on the 60-day chart can turn from bullish into bearish any time during the week. That's why I always say "do not trust my judgment, do your homework yourself and do it on regular basis. You skip it, you lose it. If you skip and did not lose that mean that you were lucky and next time you may lose even more...".

Ok, back to the 60-day chart I may say that all three indexes S&P 500, Dow(30) and Nasdaq 100 have almost similar sentiment on all technical indicators:

• SBV - Bullish - The SBV is moving up;
• MVO - Bullish - the last high volume surge is red - during the price decline;
• Advance-Decline Issues Oscillator - Bullish - The AD Oscillator is on up-side;
• RSI and Stochastics - Bullish - The RSI and Stochastics are above70 and 80 levels respectively;
• MACD- Bullish - The MACD is advancing;
• McClellan Oscillator - Bullish - The McClellan Oscillator is on its way up.

Chart 1: DJI 60-day chart with elements of technical analysis

S&P 500

In my last "New Highs/Lows" post on August 12, 2008 I have reviewed my longer term outlook based on technical analysis of 1-year index charts with mentioning that over the shorter term I see oversold levels on Nasdaq 100, S&P 500 and DJI indexes - we saw a dive on the market on August 13 with some recovery by the end of the week.

In majority cases the reversal point after down trend (support) is very sharp and sudden. In opposite a reversal point after uptrend (resistance) is not as volatile and as a rule spread over the time when we may see almost flat market. We had up-move after August 1st and then some decline with Flat market after August 11th.  Now, my shorter-term main question is "Does the market released the oversold pressure over the last week and now it's ready for go further up? or the stock market levelled the indexes before deeper slide?". Keep in mind that I'm referring to the shorter-term trends. My longer-term technical analysis is basically unchanged and I still in Bullish mood and believe in higher odds to see the indexes higher than they are today (refer to my 1-year technical analysis in my "New Highs/Lows" post on August 12, 2008 and my "DJI" post on July 20, 2008).

Chart 1: 60-day S&P 500 Chart technical indicators

From the chart above I may see that my S&P 500 technical indicators are bullish, yet, some of them close to become bearish:

• SBV - Bullish - The SBV moves up pointing to the positive sentiment;
• MVO - Bearish - The MVO shows high volume surges during the recovery in the period from July 22, 2008. Each time after such volume surge we saw small correction, however, we did not see high volume surges during these corrections (absence of red MVO). From one side it tells us that high volume surge during the up-move is needed to push the S&P 500 index down, yet much smaller volume is needed to reverse the S&P 500 index back into up-trend and this fact confirms my longer term outlook. Yet these volume surges are making an input into moving the index into oversold levels which may push the market into stronger correction;
• Advance-Decline Issues Oscillator - Bullish/Bearish - The AD Oscillator is at high positive level, yet it started to move down by pointing to the possible beginning of the changes in the sentiment towards the declining stocks;
• RSI and Stochastics - Neutral - The RSI and Stochastics are on the edge of 70 and 80 levels respectively. Should they start to move down it may point to Bearish trend. Should they go back above their critical lines it would point to the possibility of further Bullish trend;
• MACD- Neutral - The MACD is flat and basically neutral;
• McClellan Oscillator - Bullish - The McClellan Oscillator is on its way up and is Bullish at this point of time.

The DJI 60-day chart looks similar to the S&P 500 chart above. Yet, the Nasdaq 100 60-day technical analysis is more negative by pointing to the higher odds of a possible slide into correction. For the Nasdaq 100:

• SBV - Bearish - The SBV moves down;
• MVO - Bearish - The MVO shows absence of red (high volume during the price drop) and shows a lot of green (high volume during the price rise);
• Advance-Decline Issues Oscillator - Bearish - The AD Oscillator is on its way down;
• RSI and Stochastics - Bearish - The RSI and Stochastics dropped below 70 and 80 levels respectively;
• MACD- Bearish - The MACD is on the down side;
• McClellan Oscillator - Bullish - The McClellan Oscillator is on its way up, yet it is still below zero line.

Overall, by analyzing 60-day technical indicator I may say that I see the possibility of the correction down, yet, at the same time I see the possibility of the scenario when the market can ignore the Nasdaq 100 bearish indicators and move up under the pressure of the Bullish parent longer-term trend. I would say that for me, the shorter term trend is undefined at the current moment and one of the conservative strategies in such situation could be staying in cash until I see the Nasdaq 100 become bullish or the S&P 500 and DJI more bearish.