Money Flow

The indexes did not reversed. They continued its up move and they continued it on high volume. The money flow continued to be positive. Now when the volume surges became stronger I would watch for the change in the money flow on the 15-min and 30-min charts (1 bar = 15 minutes and 1 bar = 30 minutes).

FOMC Minutes folled by Volatile Trading

It was quite strong volume increase after the minutes of the FOMC meeting. Quiet trading at the morning has became a little bit volatile after 14:00 EST - swing up, down and up again. As a rule strong volume during the price rise (as we saw today afternoon) may push indexes down. Already on the lower time frame charts (1 bar = 1 minute, 1 bar = 5 min and 1 bar = 10 min) I may see some weak signals that would suggest a possibility of decline. However, by referring the higher time-frames 15-min charts (1 bar = 15 min), 30-min charts and especially hourly charts (1 bar = 1 hour) I may see that the positive sentiment is still strong. Based on this, I may expect to see some decline tomorrow at the morning. However, at this point it is difficult to say, in case it goes down whether it may grown into something stronger which would go beyond the morning trading .

High Volume

Small Advance and very huge volume after FOMC minutes. I would be cautious about possibility of reversal swing down.

Volume and Advance/Decline Charts

As my yesterday's post followup - volume and advance decline index chart presented in that post could be found on the MarketVolume's website (http://www.marketvolume.com). At this moment MarketVolume is the only source of intraday advance/decline and volume charts for US indexes and exchanges.

Low Volatility, Low Volume

The stock market is quiet. The average trading volume is quite low. There are no economic news today. Te only economic event for tomorrow is "Minutes of FOMC Meeting".

This is options expiration week (October's options will expire on this Friday) and usually options week is accompanied by volatile trading. The odds are good that we may see similarly quiet trading by the end of the session.

However, keep in mind that moments of very low volatility are also known in technical analysis as "Market Squeezes" and usually are characterized as "Silence before storm" and are noted before strong moves.

S&P 500 Chart

Another mixed week. The S&P 500 and DJI indexes moved higher while the Nasdaq 100 moved in side-way trend in which this index has been since September 24, 2010 (right now only a few points higher). The S&P 500 an DJI indexes were mostly traded side-way (since September 24 as well) with exception of the strong rally on October 5, 2010. Currently, the Nasdaq 100 index moves at its high levels seen in April 2010. The S&P 500 and DJI indexes are still 2-3% below their April's highs.

Below I have posted daily chart (1 bar = 1 hour) of the S&P 500 index with plotted Nasdaq 100 index (orange line).

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

The technical analysis on the chart above is applied to the S&P 500 index. The DJI daily chart would give quite similar picture. The Nasdaq 100 daily chart would be slightly different , with a little bit more bearish sentiment.

By summarizing the indicators above I may say that the longer-term positive divergence on the SBV and advance/decline oscillator is a good sign from the longer-term prospective. However, there are several negative signals at the current moment:

 - the SBV is still at high positive levels and is moving sideway. Even bullish volume accumulation could be considered quite strong and would indicate oversold index's condition, the Money Flow is still positive on the S&P 500 and DJI (not on the Nasdaq 100). Until we have positive money flow there are always will be good odds of up-move

 - Advance/decline volume and issues ratios and McClellan Oscillator are moving sideway after being at high levels. This suggests that if in September we had traders buying advancing stocks then, right now, there are not as many traders focused on the positive stocks as before. The number of traders focused on the declining stocks is about the same as the number of traders that are trading rising stocks. This shift from trading positive stocks suggest that many traders switch into bearish mood and if this tendency continue we may see more traders in bearish mood.

- We have a signal on the MVO. This suggests an increase in bullish volume (bullish volume surge). As a rule such increase in volume during price advance may lead to the shift in supply demand balance (when power of buyers become existed) with further reversal down. However, if you scroll the history you will see that usually reversal occurs when MVO returns to zero.

- The biggest concern on my view is an increase in volatility. The volatility is up since its low readings in the middle of September 2010. This is not normal. I have not see a lot of periods in the history when indexes moved up on rising volatility. The volatility is not too big to be considered strongly bearish, however the fact that is up from its low readings suggests nervous and uncertain trading, which is usually seen during down-moves.

Overall, I would say the the indexes could be considered predisposed to move down and we already may see some bearish signals. Which is logical when the indexes are at their Aprils highs. After a month of positive trading we may expect quite strong reversal. However, until wee see some negative money flow it could be too risky to play on it. If correction down meant to bee strong then there is no need to play at the top. More conservative approach would be wait for conformational signals and ply confirmed trend.

Indexes

DJI and S&P 500 indexes just broke their September 17's high. Good sign to rally closer to the resistance seen in April 2010. The Nasdaq 100 is behind. As I previously mentioned, the Nasdaq 100 rally in September was much stronger in comparison to the September's up-move in S&P 500 and DJI sectors. Therefore when it comes to new highs the Nasdaq 100 stays behind of other indexes.

The market continue to be volatile. I will not be surprise to see another swing down, especially after such increase in volume during the last swing up.

Unsertain Sentiment on High Volatility

It was a quite volatile session today: opening at high, then swing down, then swing up, then decline, then recovery. At the end of the day the indexes are where they were yesterday. The indexes did not continued the up-rally we had on October 5th, yet at the same time the indexes do not rush into correction.

From one side it is difficult to believe that 2-3% correctional move down (mostly side-way trading) we saw at the end of September would release the market (indexes) from the overbought condition the indexes should be after September's bullish trading. From other side it is harder to break bullish sentiment into correction than bearish sentiment.

I think many technical analysis are betting on the S&P 500 and DJI hitting their highs seen in April 2010. Maybe it is were they are going, however, I do not like volatility. If you check daily charts, you will see that such up and down swings are very often noted before strong declines.

Bullish an bearish signals

The indexes are down despite the good "job reports" - it looks like the market (investors) starts to ignore good news and focus on bad news.

I do not believe in news analysis - there are always bad and good news and there are no cafeterias that would define the importance of the news. However, the same as in technical analysis you may see moments when bullish or bearish signals (news) are ignored and such moment could be considered as signals as well or at least as a moments to be on alert.

DJI down, Nasdaq up

Indexes are quite volatile today - jumping up and down.

In opposite to yesterday, the DJI is pushing down while Nasdaq holds the ground.

DJI Flat - Nasdaq Down

We had Nasdaq 100 down today, when it lost more than 50% of yesterday loss - this good for Bears. On the other hand the DJI index did hold the ground and stayed at yesterday close level - this is good for Bulls. The S&P 500 index was between them and it was ready to follow the strongest one.

This is a mixed situation. We have to keep in mind that in September the Nasdaq 100 up-move was much stronger than the DJI and S&P 500 up-trend. Respectfully, the Nasdaq 100 could be considered to be oversold stronger. Yet, as I previously mentioned, if an index is oversold and predisposed to move down it does not necessary imply that this index will go down - it is good to wait for some reversal confirmation.

Following Volume

The first scenario (see yesterday post)???: "High volume means big players ... selling at high (indexes are at their 5-month highs) to greedy buyers and to short players whose stop-losses were hit when indexes opened strongly up."

Or it's too early o judge???

New day - New data

New day - new data - new view on the market. In similar to September 30h way we had strong opening. Index futures traders have pushed the indexes up before the bell, yet, in opposite to September 30th way this time positive sentiment on futures market was supported by positive move on the stock market and indexes continued to move up.

As I mentioned above, new day brought new data that on my opinion attention should be paid to:

 - we had very strong volume during today's run up. The strongest increase was seen in the financial sectors (see Nasdaq Financial and S&P Financials). NYSE daily volume is the highest daily volume since July 16, 2010. Nice volume increase was seen in the S&P 500 and DJI sectors. However, the Nasdaq 100 index volume was not as high;

 - we had very extremely strong bullish advance/decline readings;

- we have further increase in volatility on daily charts;

- S&P 500 and DJI broke their high levels seen on September 30, yet the Nasdaq 100 index stayed below its high.

High volume means big players are in the game. The question is what they are doing - are they selling at high (indexes are at their 5-nmonth highs) to greedy buyers and to short players whose stop-losses were hit when indexes opened strongly up. Or they are buying at high because they have information that assures them that the market will go up without any correctional move down??? I do not think retail traders could be selling in such amounts. However, there could be other big players who decided to play short at high - in this case this is a battle between giants and we should see who wins when we see volume down.

Another Blog

Just run into another blog that like me uses MarketVolume's charts in analysis:

http://smartmoneyvolume.blogspot.com

Indexes started this morning by jumping up and down - volatility was always a good sign for bears.

Index Technical Analysis

As I mentioned a week ago in my "Increase in Volatility" post: "My expectation from the coming week are neutral. If we do not see strong decline on Monday, then I would expect to see side-way trading. Even if we see decline, I would expect the indexes to be above September 23's low in side-way action." - this is the exact scenario of what we saw over the last five trading sessions. The S&P 500 and DJI indexes are where they were last Friday (on September 24, 2010) and the Nasdaq 100 index slightly declined, yet, it is still above its low seen on September 23, 2010.

After a week of side-way trading, from technical analysis prospective, I would say, that many of technical indicators have generated bearish signals on Thursday September 30, 2010. However, side-way trading on Friday October 1, 2010 has pushed most of them back into neutral area.

Even most of technical indicators on the indexes hourly charts are in the neutral area, on the mid-term charts (1.5-year chart) we may see many bearish signals and bearish sentiment on these charts is quite strong. I consider that the market is strongly predisposed to have at least some correctional move down by the following reasons:

 - September was the positive month and there is no doubt for me that that market could be considered overbought (we had big positive volume/money accumulation over that period) which does not imply that the market will change its direction but which means the stock market is predisposed to change its direction;

 - After being down we see increase in volatility on the mid-term charts which means that the mid-term traders become nervous which means that when they may start dumping their stocks in order to fix their profit at the current highs - it may push indexes down;

 - Even on some shorter-term frames we may see positive signals, majority of technical indicators on mid-term charts are bearish and after a week of side-way action mid-term trader could become major players on the market;

 - On Thursday (on September 30) before the market opened, futures traders encouraged by good economic reports have pushed indexes strongly higher. However, after the bell (after the market opened), their positive sentiment was not supported by the rest of the market. In opposite, the indexes (Nasdaq 100, S&P 500,DJI, etc) have hit levels where stock traders started to sell and their selling pressure pushed the market stronger down. Such behavior of the stock traders, when they sell by ignoring positive news, I usually consider as a break down point when the market is on the edge to move down.

My bearish mood does not mean that the stock market must necessary go down. For many traders, the conservative trading strategy would be waiting when the indexes (S&P 500, Nasdaq 100 and DJI) break either their low seen on September 23rd or their high we saw on September 30th.

Increase in Volatility

It was a volatile week. Strong opening on Monday, then tree negative sessions in a row (Tuesday-Thursday) and then again strong opening on Friday which basically made the past week positive. Even the Tuesday-Thursday's move down is quite shallow it is the strongest one since the beginning of September.

I'll try to be short this time. From one side my technical analysis suggests that the indexes are overbought and we may see some strong move down in the future. From other side we still did not see any confirmation signals of beginning of such move. Additional negative sign is that the past week has brought increase into volatility on the longer-term chart.

My expectation from the coming week are neutral. If we do not see strong decline on Monday, then I would expect to see side-way trading. Even if we see decline, I would expect the indexes be above September 23's low in side-way action.

Index Trading

side-way trading on the S&P 500 and DJI indexes and eight straight in a row positive trading sessions on the Nasdaq 100 index - this is what we have by the end of the week. There is quite different picture on other indexes. As an example, the Dow Jones Utilities (^DJU) index is already in the correction down since September 9, 2010.

Overall, we have not seen negative moves on main market indexes over the past week. However, the same as I mentioned in my few previous posts, I would say that intensity is growing.

Some points to consider, which I think are important.

• The advance/decline issues and volume ratios are moving down on all three indexes (Nasdaq 100, DJI and S&P 500). On the DJI and S&P 500 indexes the advance/decline ratio is already negative. This indicator tells that the majority of stocks are already in decline. The indexes are not down because of the strong earnings reports and strong moves on some big companies (one company make 5% up and five companies make 1% down each - you have index flat).
•  We had big bullish volume surges on many indexes over the past couple of trading sessions. The strongest bullish volume surges were noted in the insurance and internet market sectors. Such surges indicate that big institutional traders make a decision to fix profit at the top and sell big number of shares to greedy retail investors. Personally, I would stay away from the investing into insurance companies, especially by knowing that the Government is putting hand on the health insurance which will take away some profit from the insurance companies.
•  Taking into account big bullish volume accumulation on many indexes over the past two weeks, the stock market could be considered overbought. The indexes (Nasdaq 100, S&P 500 and DJI) did not have any noticeable correction over the past two week.
•  We have negative divergence on many technical indicators - when the price moves up and make new highs yet an indicator does not make new highs. As a rule this suggests changes in the stock market sentiment.
•  All over the media you may hear positive news, like there are no negative news at all - this is a negative sign for me. I consider it like attempt to manipulate sentiment of small traders and make them buy while "big boys" (who invest big and who express opinion on news) are dumping.

Some positive signals

• Longer-term volatility is down - this is a positive sign.

In summary, I would say that that technical analysis suggests that the market is predisposed to move down. Some indexes and market sectors are already in decline, yet, main market indexes are still at the top. My opinion is that we may face bearish trend, yet I could be wrong. If the market is predisposed to move down it does not necessary mean it will go down - we still may see side-way trading. A conservative trading strategy could be waiting for confirmation signals before investing.

P.S. Some interesting quote from the news - something negative that is not strongly highlighted in the media: "Regulators on Friday shut down three Georgia banks and one each in New Jersey, Ohio and Wisconsin, boosting to 125 the number of U.S. bank failures this year … The number of bank failures is expected to peak this year and be slightly higher than the 140 that fell in 2009. That was the highest annual tally since 1992, at the height of the savings and loan crisis. The 2009 failures cost the insurance fund more than $30 billion. Twenty-five banks failed in 2008, the year the financial crisis struck with force; only three succumbed in 2007."

Intensity is growing

Seven trading sessions in a row the Nasdaq 100 have been positive. The rest of the indexes are forth session in a row in the side-way move. Intensity is growing...

Advance/Decline ratios on the S&P 500 and DJI are already negative...

Nasdaq 100

The indexes continue to move almost flat, with exception of the Nasdaq 100 index. It looks like the indexes are ready to go down, yet they wait until the Nasdaq 100 collect more overbought power.

The are two interesting thins happened today.

We had extremely strong volume surges in the Nasdaq Insurance and Nasdaq Internet market sectors. Keep in mind that this is sixth positive trading session in a row on the Nasdaq 100 index. These surges in the Nasdaq sector indexes would push the Nasdaq in stronger overbought condition.

Another point worth mentioning is very low volatility by the end of today's session on all indexes. I have already mentioned several days ago in the "Volatility Down" post (on September 9, 2010) that such drop in volatility is considered as "The Squeeze" and very often noted before sharp and strong swings. In addition, such low drop in volatility is very unusual in period of futures expiration - this Friday we have options expiration, futures expiration and index options expiration ("Triple Witching Week").

Increase in Volume

As I mentioned two days ago "sharp drop in volatility (also known as "the Squeeze") could be nicely seen on Bollinger bandwidth on hourly chart. Such Squeezes to the volatility lowest levels are usually noted before strong and sharp moves." - we had yesterday strong and sharp up move.

Another point that is worth mentioning is an increase in daily trading volume (nicely seen in the Nasdaq 100 sector) over the last three trading session. While technical analysis continue to remain bullish it could be "too close" to the "to late" to open a long position. At the same time it would be too early to play short.

DJI, S&P 500 and Nasdaq indexes have hit their resistance levels seen in the middle of June and at the beginning of August 2010. The indexes bounced twice from the levels they are right now and there is a possibility we may see the third break down. Still, it could be nice to see a couple of sessions of side-way trading prior to that.