Advance Decline Analysis

Overall, we had quite a positive week with the exception of the last trading session on Friday May 14, 2010 when indexes declined strongly: S&P 500 - 1.85%, Nasdaq 100 - 1.97%, DJI - 1.49%, NYSE Composite - 2.15%, etc.

The good news is that it was not 3% or stronger (as we had before) decline and biggest part of trading session on Friday was in side-way range. The bad news is that it still was a strong decline and it pushed volatility trend up again.

Let's take a look at the Friday's decline from the prospective of my technical analysis and what I would expect to see. I emphasize on my and I because it is my personal opinion and my personal analysis which may not necessary goes along with analysis of other "professional" traders, investors and or advisors. I always recommend (before relaying on anyone's analysis or recommendations) checking the charts and doing some analysis by yourself and only then you can create your own opinion which may be based on the analysis results of others or may not. But it will be your opinion and at the end you will be investing your money.

Below I tried to summaries negative and positive aspects of Friday's decline and how it possibly may affect future trend.

• Advances and Declines: We had extremely low NYSE Composite and S&P 500 Advance/Decline reading as a rule such low readings suggest strongly oversold condition and in most cases we may see strong bounce up after this. This is a good sign and we may see bounce up and recovery to the April’s high levels and even higher.
  
  The bad thing about it is that this is fifth occurrence of such low advance/decline readings over past one-month period: on 4/16/2010, on 4/27/2010, on 5/4/2010, on 5/7/2010 and on Friday 5/14/2010.
  
  After April 16, 2010 we had 5-session up-move; after 4/27/2010 2 days of strong recovery; after 5/4/2010 no bounce up and after 5/7/2010 we had 3 days of strong up move. Now after 5/14/2010 low advance/decline readings I would expect to see bounce up as well. Yet, the bad thing is that we witnessed too many such low advance/decline readings within short period of time. Usually it happens at the bottom of down-trends or before begging of a long-term downtrend. Such frequent occurrence of low advance/decline readings in many cases is considered as a pre-signal of possible radical changes in the longer-term trend.
  
  I do not want to scary anyone that we are on the edge of new stock market crash. As I mentioned above, it could be played both ways. Personally, I would expect to see the indexes moving up to the April's highs and even higher, however, if this is not the case then I would be very cautious about longer-term trend.
• Volatility: Volatility on daily charts (1 bar = 1 day) continue to remain at high level. Volatility is not moving up which is good, however it does not decline which is not good (it moves sideway). I already mentioned several times in my previous posts that I would like to see a decline in volatility and only then I would be more bullish.
• Volume: Friday's decline did not generate strong bearish volume surges. From one side the indexes do not need strong bearish volume surges to move higher, because we already had very strong bearish volume surges during the decline on May 6-7, 2010. From other site it still would be nice to have some bearish money flow accumulated during that decline.
• Other Technical Indicators: Other technical studies (Stochastics, RSI, MACD, etc) are mostly bearish by suggesting possibility of further slide. However, I would count on the fact that majority of them are lagging indicators (signal changes in a trend after it happen) and taking into account current high volatility level we may see sudden and strong change in a trend and the sentiment could be changed very fast from currently bearish into bullish.

Overall, at this moment I base my technical analysis on the advance/decline data. Because of the low advance decline readings we had on Friday May 14, 2010 I would expect to see the indexes higher than where they are now. Yes, we still may see some decline, yet, on my opinion market has to bounce up. Then, depending on how strong and volatile the bounce is, I would build my further technical analysis.

Volatility still Up

As expected, we had a strong bounce up from the oversold levels.

I will be short:

Today's rally up is logical reaction on high volume surges during May 6-7, 2010 decline.

The good news is that today's trading session daily volume on all indexes (NYSE Composite, Nasdaq Composite, S&P 500, DJI, etc) is lower than the daily volume we had on May 6-7, 2010. We may see changes in the money flow toward positive readings. Many technical indicators became bullish suggesting a possibility of further recovery.

Not very nice news is that the volatility remains on high level and still is raising. Today's advance was quite strong - we have not see such strong daily gain since 2008th stock market crash. Because of that, Even I consider that the odds on the side of up-move, I would be very cautious and I would not be strongly bullish until I see some decline in volatility.

Oversold?

When the market goes down it triggers stop-losses set by traders. The job of a broker is to close a position when stop-loss order is triggered. A broker does not have to close a trader's position at stop-loss price - a position should be closed at any available price. Still, under usual circumstances if a stop is hit a position is closed at stop-price. However, if a big number of stop-loss orders are hit in a short time span and brokers have to close position of many traders and sell billions of shares and there are no enough buyers for these shares than those shares crash down until they are price low enough to attract buyers to buy them. That is how market may suddenly crash and that what most likely happened on Thursday May 6, 2010.

Now from technical analysis prospective we have strongly oversold volume and advance/decline signals. You may see very strong bearish volume surges in all market sectors: in NYSE, S&P 500, Nasdaq 100, DJI, etc. Actually, NYSE Composite trading volume on May 6, 2010 is the highest daily volume since October 10, 2008. At the same time you may see strongly oversold advance/decline readings on the NYSE Composite and S&P 500 indexes on May 6-7, 2010.

There is no doubt that the market has become strongly oversold during the recent crash down. There is enough oversold power to push indexes strongly higher and I would expect to see this move. However, majority technical indicators remain bearish indicating bearish mood among traders. In this case it could be good idea to wait at least for a few signals that would confirm a reversal. Personally I would be looking for decrease in volatility and change in the direction of the money flow.

S&P 500 Chart

Below you may see the S&P 500 index chart as a follow-up illustration to my previous "Stock Market Crash" post. Blue bars on the chart represent volume of the S&P 500 index. Increase in volume is very clearly seen at the end of April 2010, as well as huge volume on May 6-7 during the crash. The chart is taken from www.marketvolume.com

Chart #1: The S&P 500 of stock market crash in May 2010

Stock Market Crash

The stock market crash on Thursday May 6, 2010 is quite interesting. Someone may even call it very suspicious by the following reasons:
1. It happened when market was already in decline.
2. The indexes dropped to the lows seen in February 2010 - where the majority of stop-losses were set (support levels always were sensitive for many professional and retail traders).
3. It looks like somebody new that something has to happened and that somebody fix profit in the second half of April 2010 - see high volume surges in that period at the resistance.
4. The huge number of stop-losses were traded and somebody bought them - see huge volume during the crash on May 6 - 7, 2010.

Isn't it suspicious that somebody was fixing profit in huge volumes in the April and than we had "human or computer error by accident" and then somebody was buying in huge volumes during the crash...

I think that, now, after "Goldman Sachs Scandal" everybody knows that it is "OK" for a broker to trade against it's clients. I'm just wondering: is it true that brokers know where the majority of stop-losses of their client-traders are set?

When the Government set a new Law for Credit card Companies, before that Law took affect, almost all credit companies raised rates and introduced additional various fees. When The Government pass Health Care Bill  by which pre-existing condition should be treated, some insurance companies started to through out clients who have pre-existing condition before the new Law is in force. Now, the Government is working on the Wall Street Bill, I am wondering how Wall Street will do the last days of its freedom???

All the above are just guesses and we, simple people and simple traders, will never know what really happened. However, what we can do is to monitor through volume the action and manipulation of big  institutional traders. The first rule is that if you see increase in volume that means that the big traders are in action. If you may spot it then you may try to interpret it and build your trading strategy accordingly.

P.S. Tomorrow I'll try to post some technical analysis points and my view on possible further trend development.

Market Crash

Very nice volume we had today during the crash. It does not matter what was the reason, "computer glitch" or Greece crisis, the market hit down eat, all stop-losses and when there were nothing more to eat it bounced strongly up. Such strong volume means that the institutional traders were buying from those who placed stop-loss orders. All this high volume mean that, now, most likely we have oversold condition when we may have luck of bearish traders to support further decline.

It was crazy day, It was almost impossible to buy (many orders bounced back canceled), still, I like it, because such huge volume surges are clear signals of possible reversal. We still may see some volatility and maybe some decline, yet, I would expect to see the indexes (DJI, Nasdaq 100, S&P 500 and other) moving up.

I'll try to post my view of a "computer glitch" during the week-end.

Greece with Media versus Volume and Technical Analysis

Very nice day. If you take a look at my Sunday's post (See "Volatility" post on may 2, 2010) and you will understand why I am in a good mood.

In my Sunday's post I wrote "Taking into account volatility, I would assume that the odds are on the side of the development of a correction down. Big bullish money flow since the end of February 2010 has pushed the stock market into overbought condition and it is in the favor of correction down." and it could look skeptical yesterday, yet, today it is completely another story.

It was interesting to watch financial news today. News always can find an "explanation" of event. If the market goes down the media states that investors are disappointed by FED keeping rates unchanged (if the rates stay unchanged it tells that the economy cannot afford higher rates). If the market goes up media states that investors are happy that FED keeps rates unchanged (low rates stimulate economy). There are always bad and there are always good news on the stock market. Media's job is to pick up news that fit the current market movement, which should not be very difficult, especially taking into account that it is done after the fact. In this way they always look smart and professional and they are "never wrong".

Today media blame Greece financial situation about stock market drop. Common, Greece has been all over the media over the last half of year and state that investors became worried about Greece today (not yesterday and not a month ago) is funny.

The market went down because it was overbought. Over the last two weeks I repeatedly mentioned about increasing volatility and high volume as an indication of coming changes. Whoever (from big institutional investors) was worried about "Greece" have left the market within the last two weeks. If you check the index volume (NYSE volume, S&P 500 volume, DJI volume and especially Russell 2000 volume) you will see it clearly. Now we see only a result of institutional traders' actions over the past two weeks.

P.S. Volume indicators continue to be my favorite tools in technical analysis.

Volatility

During the week I had an unscheduled post. Something that I do not usually do, yet signals were very nice. I mentioned there: "suggest bounce up which could be similar to the one we had after decline on April 16, 2010 ... there will be a reaction ... as some up move. I would not try to guess now how strong this up-move could be. If I do not see an up-move reaction then I would not expect to see a strong correction." (See "Volume, Advance Decline and Volatility" post on April 27, 2010).

We had bounce up. It was not as strong and not as prolonged as the bounce after April 16, 2010, however up-move on April 29, 2010 was quite strong and many indexes (Nasdaq 100, Dow Jones Industrial, S&P 500, etc) bounced up, close to their highs seen on April 26, 2010. The current bounce up could be considered very nice from the "Correction" point of view. The reaction on high bearish volume surge and oversold advance/decline readings (seen on April 27, 2008) was strong and short-lived (indexes bounced down on April 30, 2010) - in other words - very volatile. Overall, the past week have added to the volatility and right now the volatility level is quite bearish.

In general, since April 12, 2010 the stock market could be considered in the volatile side-way move. Taking into account volatility, I would assume that the odds are on the side of the development of a correction down. Big bullish money flow since the end of February 2010 has pushed the stock market into overbought condition and it is in the favor of correction down. Many of technical studies point to correction as well. I think, if the indexes go below lows seen on April 28, 2010 it could be as another confirmation of correction.

There is only one thing that makes me cautious - this is high volume during the side-way volatile trading that we have been seen since April 12. It looks like there are two big institutional forces fight each other: one institutional "big money bag" is trying to push market down by selling at high levels and another institutional "big money bag" starts to buy in huge volumes as soon as indexes drop a few percents down. Big volume always indicates actions of big players, and there is no doubt (for me) that now, we see in actions these big players. However, if before they were playing together, it looks like now they are playing against each other. It difficult to say who from them will win, yet it looks like, since Friday’s decline was on lover volume, that bearish traders are taking over.

It is difficult to recommend anything right now. You cannot set tight stop-loss in such volatile market - it could be eaten very easily. The only thing I may recommend is watching technical indicators, review your position at least on daily basis and adjust it in accordance to new coming volume, volatility and advance decline data.

Volume, Advance Decline and Volatility

I have decided to make a quick post - something that I usually do not do during the week. As a rule, I update my blog during week-ends, yet, there is some stuff on my opinion worth mentioning.

I would recommend checking three things:
a) today's daily volume on indexes (Nasdaq 100, S&P 500, DJI and others);
b) advance/decline issues and volume readings on the S&P 500 and NYSE;
c) volatility level on indexes (the same set - Nasdaq 100, S&P 500, DJI)

You may try to compare today's decline with decline we had on April 16, 2010:
1. The same as on April 16, we had very high volume surges during the indexes' decline, yet these volume surges are not as big as those that we saw on April 16, 2010 (today's volume signal is weaker).
2. The same as on April 16, we had today extremely low advance/decline issues and volume readings on the S&P 500 and NYSE indexes, yet today's readings were much lower (more extreme - today's advance/decline signal is stronger).
3. Current volatility is growing and is higher than we had on April 16, 2010.

The first two points above would suggest bounce up which could be similar to the one we had after decline on April 16, 2010. The last point (volatility) suggests that we could be on an edge of a strong correction. I think, there will be a reaction on the first two signals (volume and advance/decline signals) as some up move. I would not try to guess now how strong this up-move could be. If I do not see an up-move reaction then I would not expect to see a strong correction.

Volume and Volatility

It's nice to be right. In the last two paragraph on my last report (see "Volume and Advance Decline Post" on Sunday April 18, 2010) I mentioned "...the stock market ... does not crash suddenly ... It is custom to see side-way trading and increase in volatility ... I would assume that we may see the indexes moving back to their recent highs. The volume surge during the Friday's decline itself may push indexes higher. The third factor pointing to possibility of rebound up is critically low advance/decline volume and ratio reading on Friday 16, 2010 ... I do not expect Friday's decline to grown into strong correction, at least not at this time."

The indexes (S&P 500, Nasdaq 100, DJI and others) have not just bounced back to the most recent highs, but many of them run over by hitting new high levels.

At the current moment many investors (I guess) asking for how long and how far will the up-rally (started in the first half of February, 2008) go? I bet many traders (including me) expected down move in the March 2010 during the side-way trading (see the "Resistance Corridor" post on April 3, 2010). Yet, the market continued its rally - that is why it is recommended to be sometimes a little bit more conservative (see last three paragraphs of the same "Resistance Corridor" post).

Now, by the end of the week many technical indicators remain positive by suggesting good odds for further up-move. Stochastics and RSI are above 70 and 80 lines respectfully. Advance/Decline volume and issues are positive as well. Money Flow indicators remains positive as well.

Despite all the positive indicators, there are two things that are worth paying attention to: high daily volume over the last two weeks and increase in volatility. The last two weeks of trading (starting from April 13, 2010) has been supported by high daily volume: huge volume surges during the April 13-15 up-move, even stronger volume surges on April 16 when indexes dropped down and still strong high volume surges during another strong up-move on April 17 - until now.

The second negative factor is an increase in volatility. As a rule increase in volatility suggests bearish mood and usually higher volatility is witnessed during a decline. This is not a good thing to see market rising on high volatility... At the current moment volatility raised to the level it was in January 2010 (during correction down). And increase in volatility on high volume during up-move is not very good sentiment...

Even technical analysis results suggest good odds of further up-move, because of high volume and increase in volatility, I would be very cautious. If volatility continues to grow or stay on the same level and we see sudden strong drops and strong bounces up, then I would expect to see a correction which could be stronger that the one we had in January 2010.

P.S. For monitoringVolume, Advance/Decline data and volatility for major US indexes and Exchanges (NYSE, S&P 500, DJI, Nasdaq 100, Russell 2000, etc) I would recommend visiting MarketVolume.com web site.

Volume and Advance Decline

I guess now, at the end of the week there should be no questions that the high volume surge may lead to the shift in supply demand balance and reversal. In current case, strong volume surge during the price up-move pushed the market into situation when those bullish traders who wanted to buy bought and the number of bullish traders who still wants to buy became too small to continue feeding price up-move. As I mentioned in my "Big Volume" post on April 14, 2010: "institutional investors decided to dump ... to bullish traders...". The number of dumped shares on April 13-15, 2010 was quite big and basically it changed the balance of bullish and bearish traders.

Of course, the one may say the market dropped down because of the "Goldman Sachs". I do not consider that this is the reason for the drop we had (unless institutional traders, who dumped on April 13-15, knew about this far ahead and they manipulated the market). Of course, it may amplified the decline, yet, it would not happened if the market would not be overbought. The market declines after high volume surge during price up-move. It has to decline to restore supply/demand balance. In the same way, the Google shares declined despite the record profit.

The media will always explains any market movement as a result of some news. Media sells news and if nobody relays on news then media will not be needed. That is why they do it. Personally, I do not build any trading decision on news releases. Following news release, on my opinion, is equivalent to obeying the commands of those who try to manipulate the stock market.

Coming back to strong decline we had on Friday April 16, 2010, I would say that it was not an ordinary decline. The decline was quite strong and volume during this decline was even stronger than the volume generated on April 13-15 during the price up-move.

As a rule, the stock market (when I mention stock market I assume main indexes: S&P 500, DJI and Nasdaq 100) does not crash suddenly, especially after prolonged in time advance. It is custom to see side-way trading and increase in volatility first. That is why I would assume that we may see the indexes moving back to their recent highs. The volume surge during the Friday's decline itself may push indexes higher. The third factor pointing to possibility of rebound up is critically low advance/decline volume and ratio reading on Friday 16, 2010.

Overall, we still may see some push down, however, I do not expect Friday's decline to grown into strong correction, at least not at this time.

Big Volume

Another day on the high volume - now, we may see it on almost all indexes. Still, the Russell 2000 index has the biggest volume surge.

I think something is going on. As you know, volume is always two side transactions and the number of sold shares is always the same as number of bought shares which is equal to volume. Price moves up because there are traders willing to buy at higher than the current market price. Big volume surge at high price means that somebody (who has huge number of shares – could be institutional investors) decided to dump those shares to bullish traders and fix profit.

Russell 2000 Volume

I usually do not post during the week. So, just a quick note for those who track indexes, especially for those who trade Russell 2000 index and its derivatives (Russell 2000 emini...):

Check the volume in the Russell 2000 sector over the last two trading sessions - I have not see something like that in the Russell 2000 sector since September 18-19, 2008...

S&P 500 Chart

Last week I have mentioned about side-way trading and waiting until upper or lower resistance lines is broken. Majority of indexes (including Nasdaq 100, S&P 500 and DJI) have run about their high levels (resistance levels) which were set in March, 2010.

The one may notice that even we had overbought signals, sometimes (as I mentioned a week ago) it is good to wait for a confirmation signals. The main indexes (nasdaq 100, DJI, S&P 500, etc) have run above their March, 2010 resistance levels and such move could be considered as a possibility of resuming up-trend. Only a few indexes remained in side-way action. Some of them are Nasdaq Biotechnology, Nasdaq Health Care, and Nasdaq Insurance (see my "Nasdaq Health Care" post). The strongest up-move has been seen in DJT (transportation) sector.

If a week ago technical indicators where mixed and some of them were pointing on possibility of down move, by the end of this week, most of them became bullish. Only some of the volume based technical indicators (see negative divergence on SBV Oscillator on the S&P 500 chart below) remain to indicate overbought levels.

Despite the fact that we may see big bullish volume accumulation, the volatility has drop to its lowest level. Last time such low volatility has been seen in the S&P 500 sector in 2007. The S&P 500 volatility (I refer to daily ATR – Average True Range) was at these levels in period from the middle of 2003 until the middle of 2007 (4 years). As a rule low volatility is an indicator of stability.

Below you may the S&P 500 chart with some technical analysis

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

Resistance Coridor?

Two weeks of side-way trading are behind (for some indexes it was a third week). As I mentioned last week in my "Nasdaq Health Care" post (March 28, 2010) "The longer we stay at top (possible resistance level) the more shares (bigger volume) are traded at high price and the more overbought market is."

I think, there is no question that we are at some resistance corridor. There should not be discussion that positive money flow since February 2010 has pushed stock market into overbought condition. The only question that could be placed now is where the market will go from this side-way trading. Will it go into a correction (which I consider would be healthy)? or will it continue to go up on ... positive unemployment report (nothing more positive comes to mind)???

One of the simplest strategies (that could be used in the current situation) is waiting for indexes (S&P 500, DJI andNasdaq 100) to break their resistance corridor lines. Over the last two weeks, the upper line of the resistance corridor could be drawn through March 25 and April 1, 2010 highs. If the indexes break this line on their up-move then we may start to think about resumption of up-trend. The lower resistance corridor line could be drawn through March 26, 20010 low. If the indexes drop below this line we may start to think about a correction down.

On my opinion, this is very simple (no complicated technical analysis has to be performed) and very conservative approach. The gap between upper and lower lines of the resistance corridor is only about 2%. Yes, the market has been in up-move for two months. Yes, the indexes are overbought. Yes, many mid-term indicators suggest good odds of correction down. However, I am not a follower of guessing the highest points to sell and lowest points to buy, especially in case of mid- and long-term trends where 1-2 percents are not as important.

There could be other strategies used to confirm the exit from the current sideway trading. Personally, in addition to the resistance lines, I would watch volatility (increase in volatility would indicate increase in bearish mood among investors) and money flow (in the current moment money flow is on the way to become negative).

Nasdaq Health Care

I'll try to make short post this week. Last week in my "Technical Analysis" post on March 21, 2010 I have stated "Overall technical analysis became more bearish over the last week, mainly because of the Friday's decline. Many technical indicators started to show bearish signs. Yet, I would not disregard high volume during the Friday's decline. This volume may push indexes back to the most recent highs." - yes, we had push back, yet the market dropped down and the stock market (Nasdaq 100, S&P 500 and DJI indexes) is where it was two weeks ago (on March 17, 2010)

As I mentioned two weeks ago "I would prefer to stay in cash. On such overbought indexes I think it would be too risky to trade "Long" and 1% of gain over five day does not worth a risk. At the same time it could be a little bit early to open a short position." (see "High Volume and Volatility" post on March 14, 2010) I would continue to stay on the same note. It is better to stay in cash during uncertain market then risk for one percent move.

Yes, the volume and volatility suggest that the market is predisposed for a correction down, yet, I would wait for a conformational signals. Taking into account that we had another week of almost side-way trading I may say the the market became overbought even stronger. The longer we stay at top (possible resistance level) the more shares (bigger volume) are traded at high price and the more overbought market is. Actually, over the last week we had some increase in volatility as well which is a bearish sign. Should we see further increase in volatility it would increase (on my opinion) the odds of a correction.

Just a thought: we still have not seen reaction of the Wall Street on the Health Care Bill... Personally, I would try staying away from buying stocks of insurance and health care companies. If you have access toNasdaq Health Care index, check it - this index only 1 point below its highest historical level which was hit in 2008. Pretty strong rally for this index over the last 12 months. Do you think it will continue to go up???

Technical Analysis

In my previous post (see "High Volume and Volatility" post on March 14, 2010) I mentioned that the market is predisposed to the correction and that I expect to see some side-way trading with preference of staying in cash. Over the last five trading sessions (a week) we saw some up-move with a decline on Friday. At the end of the week, the indexes are about 1% higher from the previous week close. Some may consider it as side-way trading, some may consider it as continuation of up-trend. I would continue to stay on the same position I was a week ago: I would prefer to stay in cash. On such overbought indexes I think it would be too risky to trade "Long" and 1% of gain over five day does not worth a risk. At the same time it could be a little bit early to open a short position.

My position of "staying in cash" is based on the same technical indicators I mentioned a week ago: strong bullish accumulation (result of positive money flow since beginning of February 2010), High volume surges during the price up-move and some increase in volatility. All of this suggests the market (based on the S&P 500, DJI and Nasdaq 100 indexes) is predisposed to the movement down.

Overall technical analysis became more bearish over the last week, mainly because of the Friday's decline. Many technical indicators started to show bearish signs. Yet, I would not disregard high volume during the Friday's decline. This volume may push indexes back to the most recent highs. On the other hand this decline may grow into correction down.

I know that my posts sometimes could look confusing. On very rare occasion I clearly state my view on the possible future trend. However, if you have at least some knowledge in the art of technical analysis I think you can get some of my ideas, compare my technical analysis with yours and maybe find a correct answer. If you are looking for a straightforward opinion and straightforward signals, I am sorry, this blog is not for you. In this case I would recommend going to payable services and get some auto-trading advices.

High Volume and Volatility

Last week (see "Low Volume and Volatility" post on March 7, 2010) I have talked about possibility of flat trading as indexes come to the January 2010 high levels. Now the indexes are at those levels. The past week could be considered slightly positive (the indexes gained modestly over the week), however we may see slow tuning into sideway trading. Actually, that DOW Jones Industrials (^DJI) index has been already moving flat over the last four trading sessions.

A week ago I mentioned "I would say based on the January's oversold levels and that we did not see any strong bullish volume surges we may expect that the indexes may still go higher. Low volatility and quiet trading would confirm that." Now, we have a different picture. Last four trading sessions the S&P 500 index has been trading on high volume. We do not see a strong volume increase in DJI sector. However, as mentioned above the DJI index is already in side-way action. Two trading sessions on the modestly higher volume in the Nasdaq 100 sector cannot be considered as serious threat, however, the Nasdaq 100 index had 13 positive sessions in a row. I have checked 10 years of the Nasdaq 100 history and I found only one period when the Nasdaq 100 index had more than 10 positive sessions in a row: it was in July 2009 - 12 positive sessions in a row.

If a week ago I hesitated to call indexes overbought, now, I would start considering that the Nasdaq 100 and S&P 500 indexes could be overbought. If you check volatility, you would see that we have increase in volatility as well. While one may explain an increase in volatility by coming Triple Witching week when options index options and futures expire, the other may consider an increase in volatility as an increase in activity of bearish traders.

In summary, I would say that even many technical indicators remain bullish, the results of my technical analysis indicates increased odds of side-way trading with possibility of developing a correction. In technical analysis volume and volatility are considering as leading indicators that signal when the market (indexes and stocks) are predisposed to change its trend. Now, as I see we have such signals. Furthermore, I would prefer to stay in cash by waiting for confirmation signals. I could be wrong and stock market could continue going up, yet, right now the indexes are at very sensitive levels.

Low Volume and Volatility

Another week of bullish trading and indexes (S&P 500, Nasdaq 100 and DJI) have climbed close to their January 2010 highs. In my "Money Flow" post on March 1, 2010 I wrote "I would say that results of my technical analysis are still Bullish and I see good odds of market moving higher. On the other hand, there is a possibility of volatile side-way trading in the same range the stock market is now". This exactly what happened this week - three day of flat, side-way trading and then up-move to the January's highs.

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

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

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

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

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

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

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

I would say based on the January's oversold levels and that we did not see any strong bullish volume surges we may expect that the indexes may still go higher. Low volatility and quiet trading would confirm that. However, I think that the supply/demand balance is only slightly in favor of the bullish traders. One of the scenarios that I'm looking at is side-way trading at January 2010 high levels (it could be higher or it could be lower). If during side-way trading we see an increase in volatility and volume surges then I would recommend checking charts for possibility of another correction.

Money Flow

I mentioned a week ago in the "Advance/Decline" post on February 22, 2010 "... when you take a look at lower time-frames, you may notice that many indicators are overbought in short-term, by signalizing a possibility of some retracement, at least in a short-term. The stock market (majority of indexes) right now is in the range of its side-way trading where it was in period from November 10, 2009 until December 18, 2009 This is another factor that may suggest a possibility of staking in this range for a while...". In the past week we have seen exactly this scenario when the indexes (S&P 500, DJI and Nasdaq 100) stuck in side-way trading. One day we saw indexes dropping down and the next day the strong recovery moved them back to the November-December 2009 highs. Then, we had another day of strong decline followed by another strong recovery. At the end of the week the indexes are almost back at the November-December 2009 highs

Now, after a week of volatile trading, I think a correct question for technical analysis would be to ask if the longer-term indicators (that were bullish last week) are still bullish enough to push the indexes higher toward the next possible "pit-stop". Another question regarding shorter-term technical indicators would be to check if those ones that were overbought in short-term last week are still overbought.

From technical analysis prospective, by taking a look at the longer-term index charts (1- and 2-year S&P 500, Nasdaq 100 and DJI charts) I would say the same I said a week ago. The January's decline was pretty strong and during that decline we had very strong bearish volume surges and extremely negative advance/decline readings. If you check money flow (Chaikin Money Flow, Money Flow Index or SBV) during that decline you may see that the stock market was strongly oversold during that time and accumulated oversold power still has not been released completely. Because of that, I would continue assuming that the odds are still good for further recovery towards January, 2010 highs.

Taking a look at shorter time-frame charts, I would not say that the technical indicators are overbought as they were overbought a week ago. Majority of technical indicators on the 60-day chart are slightly bullish or neutral by suggesting possibility from flat to rising markets. However, you should remember that shorter-term outlook may change any time during a trading session on any day. Furthermore, I would recommend monitoring the shorter-term charts for changes in a sentiment during the trading hours.

Overall, I would say that results of my technical analysis are still Bullish and I see good odds of market moving higher. On the other hand, there is a possibility of volatile side-way trading in the same range the stock market is now. In November-December 2009 the indexes (NASDAQ 100, DJI and S&P 500) have been in side-way action for a month. Now, they have being moving side-way at the same levels for a week only. So, there are still some odds we may see further side-way move.