DJI Chart

I have not been posting a chart for a while and mainly because of the current market position, I think it would be nice to take a look at the location of the indexes in relation to the previous support and resistance levels. On December 20, 2009 in my "DJI" post I already referred to the DJI (Dow Jones Industrial) longer-term charts. See below the DJI chart (chart #1) I posted at that time.

Chart #1: The DJI Chart 10-year view of the historically defined 8% side-way corridor

At that time when the up-trend was in the its full force, I alerted that the stock market is entering the sensitive area. Maybe I sounded funny when I expressed a possibility of side-way trading at the moment when the stock market up-move looked unstoppable, yet, I would like to show continuation of the same chart (see chart #2 below). I think, now you my try to analyze by yourself about a possibility of long-term side-way trading.

Chart #2: The DJI Chart 10-year view of the historically defined 8-10% side-way corridor

I do not want to state that the stock market will bounce up to to its April's highs - additional analysis on lower time-frame would be recommended for this. The DJI index has already been in this sensitive side-way corridor for about 8 months. It could be the end of the side-way trading or it could be in the middle. From the charts above you may only say that the current movement is more volatile than the side-way trading trading in 2004-2005, yet it less volatile than the side-way trading 1999-2001. Still if the indexes (DJI, S&P 500 and Nasdaq 100) bounce up - it will be the first bounce up only in this historically defined sensitive sideway corridor; and at this moment, my personal technical analysis confirms that such scenario is quite real.

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

DJI Chart

I have expressed in my last week three factors worth of attention. One of them was the indexes (S&P 500 and DJI) moving sideways on the January 6, 2009 high levels. The recent bounce down from these levels confirms that these resistance lines indeed are sensitive for many traders.

While shorter-term charts and technical analysis are positive and show some odds of possible move up to the recent high levels (June 11, 2009 highs), the longer-term charts and analysis are not as optimistic. From the chart below you may see the significant drop in the daily volume which means that the main players (long-term institutional investors – "Big Money") finished investing (relocating funds) into the stock market. Starting from February 19, 2009 these institutional traders were attracted by the bargain cheap price of the under evaluated stocks and were buying in huge volumes. Their buying power was the main engine that pushed the stock market up. Now, when their buying power became somehow exhausted (trading volume become lower) we may expect the stock market trend be more dependable on the smaller players’ sentiment. I would put a question in this way: "Are the long-term non-institutional traders (who have a lot of money but not big bags) encourage the March-June rally up or they consider that they may enter the market later at lower price or when they are more confident?"

The positive thing is (I repeat what I mention in my several past posts) that the volatility is down. That means that even if we see strong correction down it’s not going to be unexpected sudden 10% drop down and most likely majority of the technical studies including trend-following indicators will be able to signal this correction. Actually, I consider that the trend following indicators could be the best in this situation. We already may see some negative money flow; we may see some overbought conditions; we understand that even for the further healthy recovery a correction down would be ok – all we need a confirmation from the trend-following technical analysis.

DJI Chart

Very nice day. It looks like we witnesses what I mentioned yesterday in my "Short Technical Analysis" post:

The bullish volume during the recent recovery (March 9-18, 2009) is very strong and can cause serious correction down, unless, March 6, 2009 bottom was the last drop in the recession and now we are in the long-term recovery. In this case this bullish volume could be ignored and could indicate long term change in the stock market sentiment as it was in period from March 12 to March 21 of 2003...

It is not just about volume - many technical indicators show that the market is overbought in short-term and possible correctional move down already a week ago - see my "S&P 500 Chart" post where I alerted about possibility of short-term correction within longer-term up-trend. The today's run up is very good from longer-term trend point of view. Now, unless tomorrow we see decline, I would expect DJI to go very easy  above $8,000 - next possible sensitive level where stock market fluctuated a lot over the past couple of months (Nasdaq 100 and S&P 500 indexes have similar sensitive levels).

DJI Chart

As you may see from the DJI chart above majority of the technical indicators are bearish by pointing to the possibility of further decline. By comparing the DJI index to the S&P 500 and Nasdaq 100 indexes I may see similar sentiment with difference that the Nasdaq 100 index is less oversold.

S&P 500 and Dow Jones Industrials have become heavily oversold during the last week. The DJI trading volume on Friday did beat all historical records. Even the technical analysis is more bearish, because of this high volume surges during the price decline and heavily oversold indexes, I would recommend monitoring chart on the intraday basis very closely. With such high volume, as a rule, comes strong reversal. On the S&P 500 and DJI the recent volume surges are much stronger than those that we saw in October and November of 2008 and all of them lead to reversal. I do not think that the recent high volume explosion is going to be an exception. We may see reversal and it could be tomorrow or it could be several days after. Taking into account the magnitude of this volume surges we may face very strong and sharp up move.

DJI Chart

A week ago in "New Bailout" post on February 1, 2009 I have mentioned that the market is heavily oversold and possible run up. That was exactly what happened past week, however, there is some points that make me cautious. When I do not have certain degree of confidence I prefer to watch. Here they are:

• I do not like that during the last up move the NASDAQ 100 recovered almost to the January 6, 2009 high (highest level after November 21, 2008 bottom) while the S&P 500 and DJI indexes are still close to the lowest support levels and they are still far from the January 6, 2009 high.
• I do not like that the last up move we saw this week was supported by very high volume (especially in DJI sector). No doubt that institutional players were in game and I am not sure what they were doing. Volume is always two side transaction and we have volume only when we have buyers who satisfying sellers and I'm not sure on what side institutional traders were: a) they were buying because they know that the recovery will continue or b) they dump before decline.

Because of these two points I think I will wait until I see how market react on this high bullish volume - will this volume be ignored? or will we see decline? Taking look at the technical analysis of the hourly charts (1 bar = 1 hour) I may say that despite the disharmony in the recovery between Nasdaq 100 and DJI with S&P 500, the technical indicators an all these three indexes show basically the same picture and the same sentiment. Furthermore I would refer to DJI chart again, since the volume surges were most expressed on this index.


 Almost all of the technical studies on the DJI chart above still show positive sentiment, yet, at the same time they show that the market is overbought at this stage. Exception is RSI which is still on the up move. MVO is growing up by emphasizing the overbought condition. By ignoring what I say above I may say that this chart is still positive and suggest possibility of the further recovery, yet, with elements of overbought market which may push indexes lower. Based on the past experience I would not expect to see down turn until I see some flat market, MVO decline to zero, McClellan crossing zero line, SBV and Advance/Decline Oscillator decline.

Short technical Analysis

Last week my technical analysis (see "Dow Jones Industrials" post on January 18, 2009) was positive, yet, it looks like the stock market stuck on the same level for a week mowing around support highlighted in my previous report. Now, taking a look at the same technical indicators I see that all of them on all main indexes (S&P 500, DJI and Nasdaq 100) are still bullish with exception of McClellan Oscillator which is on its way down indicating a possibility of slide.

I still consider January 15, 2009 low level (drawn in my last post) as a possible support level and this sis mainly because of high trading volume in this period. Yes, over the past week the indexes dropped lightly below this level, however not deep enough to consider that there still a lot of panic sellers who may push market lower.

There is sill one factor that makes me worried. If starting from November 2008 the volatility was going down, see ATR%(7) on yearly (1 bar = 1 day) chart and in the beginning of January 2009 volatility dropped almost to 2008 summer levels, then starting from January 12, 2009 we may see an increase in volatility. For me it means that if a month ago I started to spend less time in front of chart and step by step switch to last year summer's indicators setting then now I have to be again on the alert and monitor charts daily during the trading hours. It looks like it could be too early to relax.

Dow Jones Industrials

Another week is behind. Following my previous week "DOW Chart" post I may say that my worries abut further slide were confirmed. In that post I mentioned that the stock market is oversold and we may face a reversal soon, yet, I put a few condition that would be nice to meet before a reversal is confirm. One of this condition was McClellan Oscillator crossing zero line and the other one was presence of  negative MVO which would reveal the high volume surge (panic selling) during decline...

So, what do we have now? - We see that both of these conditions are met and we already saw some recovery. By taking a look at the same set of  technical studies I used a week ago I may say that technical analysis based on these indicators is Bullish. If a week ago the indicators show oversold market yet they were negative, then right now they still show oversold market but with Bullish sentiment which makes me believe that the odds are on the side of the recovery. The small exception is the S&P 500 index which is bullish but not as bullish as Nasdaq 100 and DJI indexes.


There are two positive factors for me that I would like to highlight.

a) The same as on October 9-13, 2008 and the same as on November 19-24, 2008 we saw high volume activity in the DJI sector on January 14-16, 2008. I always stated and I repeat myself - I associate high volume surge during decline as panic selling. Yet, because volume is always two side transaction and there is always a buyer for each seller, high volume during the decline tell us that the buyers started to satisfy demands of the panic sellers by buying from them in huge amounts and as a rule that leads to the shift in the supply/demand balance when those who wanted to sell already sold and do not push market down in panic any more.

b) Second positive factor is that in 2008 each time we had huge volume surge and reversal it was lower than the previous support level. This is the first time when we have huge volume activity which is above the previous support level. If we have a reversal now, this is going to be the first reversal which will set new support level that is higher than the previous support (support on November 21, 2008).

I usually do not give any advices, however, for long-term traders, for pension investors there is simple trading strategy which has only one rule: "Buy each time you see huge volume surge during price decline". As I mentioned in October 2008 (read my "Long-Term Investment" post) and as I stated in November 2008 (read my "DJI Analysis" post) I would say again - I consider it is good time to consider... Yet, if you believe that USA economy is going to crash further and never recover back, if you believe that this is only a beginning of the end (there is always a possibility) then you should stay away from any type of investment...

Again, I could be wrong and I'm not an investment advisor, so, do not trust me and do not trust anyone when you invest your money. Do not make any trading decision on what I told above - do your own home work.

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.

DJI Analysis

Another bailout - another crash? On my opinion the indexes moved down under the high Bullish volume (greedy buying) seen on October 29-30, 2008. Strong rally on October 28 inspired investors and they started to buy (see green MVO on the chart below). Yet, not for a long. Many investors are still desperate and on November 20-21, 2008, after the indexes dropped below the 10/10 (October 10) support, wee see explosion of the extreme panic selling (see the same chart below). Most likely this panic selling did set new support level.



I always point to the importance of understanding volume surges. The main rule that is usually forgotten by many traders is that volume is always two side transaction and when you see volume = 100 shares it means that somebody sell 100 shares and somebody bought these 100 shares. When we have volume surge and volume = 2.6B (daily DJI volume on 11/21/2008) that mean that some investors decided to buy 2.6B shares from those who were selling them in panic. No doubt that this extremely high volume indicates that now panic sellers have 2.6B shares less to sell and as a result there are less sellers on the market to push it further down.

How many of investors in panic is still on the market - I do not know. There still could be a lot of traders willing to sell stocks they have in panic or sell stocks short in greed. I know one thing - by tracking volume I may clearly see that big money bags (big institutional investors) were buying on September 15-19, they were buying on October 8-17 and they are buying now. The huge volume surges in these periods means huge number of shares moved from one group of investors to others. Only long-term investors have such big money to buy in such huge volumes. The big investors use simple trading strategy - each time they see new bottom, new low bargain price - they are buying. The same that everybody suppose to do with IRA and 401k accounts - each time you see huge volume surge and new low - invest money into your pension - follow big money. If you do not believe me look at the news and check what Arabian and American billionaires are doing...

I think that November 20-21 has market the new support level which is confirmed by high volume. I do not expect the stock-market be below this level soon. It is not necessary the end of the global recession, yet the huge volume seen over the last couple has to be processed and it take's time.

It was about my view on long-term investments and long-term technical analysis. About shorter-term I may say that my technical analysis at the current moment is positive:

- SBV is moving up by showing the buyers coming to the market;
- MVO shows high volume surges during the indexes decline;
- Advance/Decline Oscillator show heavily oversold market and moving up by indicating the changes in the sentiment;
- MACD, Stochastics and RSI are mowing up which is positive sign as well;
- McClellan Oscillator is neutral by moving flat around center zero line.

All my points could be seen on the DJI chart above. The S&P 500 chart has the same picture and results of the S&P 500 technical analysis is basically the same. The Nasdaq 100 technical analysis show stronger oversold levels. 10/10 (October 10) low has been broken a few days earlier and we may expect to see stronger up move on this index.

Again, this is my technical analysis and I could be wrong. I may recommend only one thing - do your own analysis.

DJI Chart

It was a nice week. The indexes climbed close to the October 14th highs (especially Dow Jones Industrials).

Twice the stock market tried to brake the October 10th lows, yet it is second time up and second time the investors are asking a question "is this the end of the recession and the market will go up or this is just a break before further crash?"

You may remember from my previous posts I stated that 10/10 (October 10, 2008) high volume surges had to stop the market from its panic slide. At the same time I stated, that only when I see the indexes moving up above October 14, 2008 highs I may more or less consider the possibility of the end of the stock market crash. I still belive that the huge volume we saw during the crash could mark the bottom of the crash. We have number of facts that points to the end of the crash: the market is heavily oversold - many technical indicators on the higher-timeframe charts (1.5-year, 2-year charts) show it; there are not many traders left who sell in panic - the fact that we did not see extremely huge volume during the first and second retest of the 10/10 lows confirms that. Yes, I think the stock market has all reasons to move up, yet, it's still close to the bottom and the market is still volatile which reveals that the market is still weak and we still may see changes in the sentiment. Overall, I consider myself bullish over the longer term and October 2008 was a good month to invest into the IRA and 401K.

Even I'm bullish in longer-term, shorter-term charts are showing that we start to see some indication of the overbought market in short term. From the chart below you may see high volume during the recovery on October 29-30, 2008. There could be 2 explanation of this volume surges: a) traders who are in panic and still did not close position on 10/10 decided to exit the market with smaller losses; b) greedy short players started to sell short by expecting the resumption of the recession. I do not think that those traders who bought on 10/10 from panic sellers ware selling now by the following reasons: a) 10/10 volume is extremely big and it tells that those traders were long-term players (short-term traders do not have such big bags of money); b) these traders were buying not just on 10/10 but every time we saw red MVO; c) the volume during recovery on 10/29-30 is relatively small if we compare it to volume surges during decline. I still consider this bullish volume may push the market down at least in a short-term. Other technical indicators are in similar short-term condition: SBV, Advance/Decline Oscillator and Stochastics show overbought market, yet are still bullish; MVO, MACD, RSI and McClellan Oscillator show bearish sentiment and possibility of move down


The 60-day technical analysis applied to the Nasdaq 100 and S&P 500 charts show similar to the DJI analysis results you may see on the chart above.

Even shorter-term charts show the possibility of slide there could be a scenario when these indication could be ignored if the market is under the influence of the longer-term trend. If this is the case and the market will move up, then it will confirm that the 10/10 bottom could be the bottom of the recession.

Stock market Crash Analysis

Friday was a nice day. The sentiment become positive and it happened on the high volume. See the DOW Jones Industrials chart below.


As I always state, I associate the high volume during the price decline with panic selling and extremely high volume with extreme panic. We already had the huge volume surge in the middle of September 2008 (see my "DJI Chart" post) which marked the end of the crash (on my opinion) at that time. I still convinced that it would be the end of the crash or at least a very solid bounce before further slide. Yet, the market dropped further down by ignoring the highly oversold levels. Why? - I think only because of the bailout (see my "Wall Street" post). When you show a "candy" to a spoiled kid you have to give it to him otherwise the child will black mail you. That is exactly what happened, credits were frozen and the kid received what he wanted...

One more point into the the favor of protecting profit strategy. We had a strong bounce on September 19, 2008 (only one day), however the reaction on the high volumes in September was not as strong as I expected, yet strong enough to be in profitable position. This situation show importance of the protecting profit - those who did not a set trailing stop instead of winning trade could end with loss.

The same is now. We have second wave of the extremely high volume - huge amount of shares changed hands - somebody was buying from panic seller in huge amounts... That tells me that we have very good chances of the strong bounce up. This week high volume together with unprocessed volume surges we had in September can push the market significantly higher. The stock market is extremely heavily oversold. Now, we saw some light when the buyers were dominant on the market (Friday's afternoon) and based on what I see I think this could be a begining of strong movement.

Yes, I'm positive - my technical analysis shows that on Friday we hit some bottom. I'm not telling that this is the End of the stock market crash and now only bright days are ahead. What I want to say is that there is a high probability we will see up-move as the reaction on the high volume surge. Will this bounce grown into the long-term recovery is another question, which would be premature to discuss now. That is why if I have opened a long position I set a trailing stop to protect a profit.

For long-term investment (IRA, 401k) I may say only one - you bought last month on the decline and high volume and now you buy lower on the decline and high volume again. If the market in a month is lower and you see high volume you will buy again. If you are long-term investor you will be reworded. If you do not know what to buy then invest into the indexes - the weak companies are dropped from the indexes and on their place come stronger ones and you do not have to do a research to find out what companies are strong.

DJI - Stock Market Crash

Made on request of www.MarketVolume.com - the only source of volume and advance decline charts for indexes and exchanges.

To take closer look at the current sentiment on the stock market as well as to define the general market tendency I decided to take closer look at higher-time frame chart in particular on 2-year DJI chart.

Chart #1: DJI index. 2-year chart. 1 bar = 2 days. SBV(10), MVO(5,25,3).


From the chart above we may see the extremely high volume surges during the recent crash. Starting from the middle of September 2008 we had records in daily trading volume. The history of the stock market did not see such extremely huge panic selling ever before. This high volume tell us that the extremely huge number of investors left the market, yet we have some group of other investors who was buying in that period at small bargain price - some traders decided to satisfy demands of those who were leaving the stock market in panic. That is why we had this high volume (volume is two side transaction - for each seller there is a buyer).

The average trading volume on NYSE in 2007 was about 3.1 billion shares per day. The average NYSE trading volume in period from the middle of September 2007 until now is about 7 billion shares per day. Starting from September 8, 2008 more than 130 billion shares were traded. Even by assuming that the average price of a stock on NYSE is only $10 per share it will give us more the 1.3 trillion of negative money flow (out of the market).

As a rule, after a huge amount of money is taken out of the market (when SBV declines) we see a rebound (investors start to invest again). From the chart above you may see a rebound each time after SBV decline in August 2007, November 2007, January 2008 and July 2008. Each time when SBV start to advance after being at low negative levels we see that it indicates positive money flow (investors coming back). Sooner or later the investor that left the market in the result of the recent crash will come back and start to inject funds into the stocks. It could be tomorrow, it could be in a week or even a month. When it happened depends on the current political and economical factors affecting the stock market and how fast the investor could be reassured in the coming stability.

At the current moment the declining SBV on 2-year chart show that the Bearish sentiment is dominant among the mid- and long-term investors. Yet, as soon as we start to see advancing SBV on this chart we may assume that the long- and mid-term traders start coming back which may lead the market up and which could be an indication of the rebound. Taking into the account that we had extremely high volume surges during the recent crash we may expect very strong up-trend.

To better anticipate a possibility of the trend reversal we may always consult lower time-frame by applying the same technical indicators to 60-day chart in our case.

Chart #2: DJI index. 60-day chart. 1 bar = 1 hour. SBV(20), MVO(5,25,3).


From the 60-day DJI chart (see chart above) we may see that the critical moment in the recent crash happened in the period from September 15 until September 19, 2008. Exactly in this period we saw the biggest volume surges and also in this period the biggest transfer of the shares occurred. When we see the big number of shares (big volume) is changing hands during the crash it tell us that the number of panic sellers is dramatically reduced (their demands are satisfied – they sold) which may lead to the shift in the supply/demands balance. After that starting from the September 20, 2008 we still see negative money flow, yet the trading volume is dropping and the number of investors leaving the marked reduces (the red SBV areas become smaller and smaller). That reveals that we see slow change in the sentiment on the stock market and we could be in the beginning of the new uptrend.

In Summary: Overall we believe that we are in the begging of the strong reversal which was defined in the middle of the September by huge volume (extremely panic selling) that pushed the stock market into strongly oversold levels. The exact day when the big long- and mid-term investors start to come back depends on many factors, yet we already see a begging of this process on the 60-day chart. From the more conservative point of volume based
technical analysis it could be recommended to wait for a confirmation on the 2-year chart when SBV(10) starts to advance.

DJI Chart

Despite my bullish last week outlook (see the "DJI" post on September 22nd, 2008) on the stock market we had the attempt to retest the September 18, 2008 lows. Yet, the market did not hit the bottom, in opposite the DJI (Dow Jones Industrials) recovered half of the weekly decline during the last two trading session. Sometimes I have feeling that it would be much better if they did not even announced the bailout than announced it and then started to play political games around it....

During the past week we had strong decline. Because of that I decided to take a look at longer 1-year chart to see if the results of my previous technical analysis are correct.


From the DOW(30) chart above we may see that the magnitude of the volume during the stock market crash is very big. I have already mentioned in my "DJI Volume" post about my understanding of such huge volume. For me it's indication of the strong panic selling that lead the stock market into strongly oversold stage. If you may try to question it on the 60-day chart by pointing that September 19th rally up has released this oversold power, the 1-year chart make me believe that we did not even see the begging of the market reaction on that huge sell off:

• The volume is still very high, which indicates we still have panic and uncertainty in the market. Yes, the last week daily volume is lower than the daily volume we saw in period from September 12 until September 19, yet it still far above the average daily volume over the past year.
  
  - The fact that the volume is down tells me that the moment of worst fear is over and there are not as many sellers as we had on September 17-18, 2008. Y
  
  - Yet, the fact that the volume is still high tells me that there are still a lot of sellers. However, as I always mention - if we see volume then somebody buying from these panic sellers and the fact that DJI is about 5% up from the September 18th low tells that the power of these buyers is bigger...
• The same with VIX (Volatility index) - it hit the top on September 18 and now it's down and moving flat. It does not move up any more which is good sign. VIX still at high level which indicates highly oversold market. We did not see the VIX moving down which confirms we did not have yet the recovery reaction on the oversold market.
• MVO is red. We do not see green MVO. That means that we had high volume surges during the price decline (panic selling) and we did not have yet high volume during the price advance (greedy buying).
• Low SBV indicates negative money flow. Yet it declines which suggest weak market, however very low levels suggest possibility of very strong recovery.
• MACD and Stochastics are in the recovery direction.

Overall, my 1-year technical analysis is bullish (in spite the last week 3-day decline) with exception of the SBV that could be considered bearish due its decline. I would still stay on my point highlighted in my last week post that I expect to see the recovery.

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.

DJI

We had very nice move up this week. In spite of negative media pressure who threatened us that another 90 financial banks more likely will follow IndyMac path, the Dow Jones Industrial index is 6.2%, the S&P 500 and the Nasdaq 100 indexes are 3.5% up from the July 15, 2008 lows. Already on July 8, 2008 in my "Stock Market Crash" post I highlighted that the market is heavily oversold and we may face the strong and fast recovery movement. However, the market moved lover and on July 14, 2008 in my "Charts Technical Analysis" post I did take a look at 1-yer charts to confirm my expectation on the market recovery. I stated that the stock market is heavily oversold and that even if the market intends to drop further down, before, it need to release the oversold pressure in the recovery movement. I pointed that the Nasdaq 100 is not as oversold as the S&P 500 and DJI indexes and we saw the Nasdaq 100 behind the other indexes rally up.

I always mention about importance of the monitoring the charts during the trading hours. By looking back on the 60-day index charts we may see that on July 14, 2008 the Advance/Decline Oscillator started to advance by pointing to the shift in the market sentiment. On the same day the SBV oscillator started to advance indicating the possibility of the recovery. Shortly after the market open on July 16, 2008 the MVO become equal to zero and McClellan Oscillator overcrossed zero line by confirming the bullish sentiment. So, I do not think that those traders who follow charts are surprised by this recovery.

Now, looking forward, we have the same question - what's next? Will the DJI and the S&P 500 indexes follow the Nasdaq 100 drop on Friday or will the recent recovery continue? I would put this question in other way - did the recent recovery release the longer-term oversold power at least partially in order to resume the down-trend? and I would put other question - looking on the recent week, did the market become oversold in the shorter term?

To answer on the first question I have to look at my 1-year chart (the chart I mentioned in my "Stock Market Crash" post).



The technical analysis applied to the yearly charts tells me that the stock market is still heavily oversold:

1. SBV is still negative and still moves up;
2.  I see only red MVO (no green MVO - no volume surges to the price up-side);
3.  Stochastics only started to move up;
4. VIX volatility index only started to decline and still is above 20;
5. MACD is not even crossed zero line on its move up from the negative area.

All the technical indicators above point to the beginning of the development of the recovery and high possibility of further up-move. The 1-year chart definitely does not show any release of oversold power and it does not show that the market has become overbought during the recent week recovery. Based on this chart I would assume that we may see further move up.

To answer the second question I have to look at my 60-day index charts and see what my technical analysis tells me about shorter time-frame. Since the Dow Jones Index has made the strongest up-move I have emphasize my attention on that index.


From the chart above we may see that the 60-day DJI technical analysis overall is positive and points to the possibility of the further up-move:

•  the SBV is still very high - could be premature to talk about changes in the bullish sentiment;
•  the Stochastics and RSI are above 80 and 70 levels respectively by pointing to the bullish sentiment as well;
• VIX volatility index is moving down, away from its July 15, 2008 high when it run above 30.
• McClellan oscillator started to move down, yet, it is still far above zero line and it could be premature to talk abbot reversal based on this technical indicator.

The only negative fact I see on the DJI chart is high volume surges during the index run up on July 17-18, 2008 (see green MVO). There is a high possibility that this high volume pushed the indexes into short-term overbought territory and the fact that MACD and McClellan oscillator started to move down shows the possibility of the market reaction on that volume. The technical studies on the S&P 500 index chart looks almost the same as on the DJI chart, yet the 60-day Nasdaq 100 chart has less positive and more negative points.

Again, I would bring up 3 possible scenarios of the further development:

Scenario #1: Stock market reacts on July 17-18 high volume and drop down - in this case it can drop lower the July 15 lows.

Scenario #2: The stock market continues to move up by ignoring the July 17-18 high volume. The market is at high oversold levels and it has power to continue the rally.  That would tell me that this high volume was generated not by buyers but sellers who considered this small recovery as a good point to sell short. In this case I would tell that, most likely, those sellers pushed the market even into stronger oversold stage and we may see even stronger recovery.

Scenario #3: The July 17-18 high volume slows down the advance and the stock market continue to move up or sideway with further retesting of the most recent lows and collecting more downside volume before final reversal.

Personally, I would stuck with the scenario #3, simply because I already see some changes in the McClellan, MACD. In addition the Nasdaq 100 is not as oversold as the other indexes. Yet, I could be wrong and may only recommend to monitor and analyze charts.