Short Trading Week

The past week could be characterized by strong decline during the first half of trading session on November 15, 2010 and by strong advance during the first 30 minutes after the the market opened on November 18, 2010. The rest of the time we had side-way trading. By the end of the trading on Friday, the indexes (Nasdaq 100, S&P 500 and DJI) were just a little bit below their Monday's opening levels.

As I already mentioned on Thursday (see "Advance/Decline" post on November 18, 2010), despite the strong advance on that day the longer-term charts (based on the daily bars) continue to indicate bearish sentiment. On the other hand intraday timeframes (with exception of hourly charts)  have some bullish signals. As an example, Money Flow on the 15- and 30-min charts points to the possibility of positive opening tomorrow. The index futures and emini index futures are already traded more than half percent up. If they stay on the same level overnight we may face strong swing up at the market open.

The coming week is not very reach on economic reports. The only thing that may push stock market into volatile trading is Minutes of FOMC meeting on Tuesday, November 23, 2010 around 2pm. In addition There is no trading on November 26 and there is a short trading session on November 27.

There is a lot of attention has been around US dollar over the last month. The S&P 500 index was highly correlated with US Dollar Index. Most likely we will continue to see this dependence. Yes, the Indexes show strongly overbought levels on the longer-term charts and many technical indicators, including money flow, suggest the good odds of stronger that we had correction. If the US Dollar continue to go up as it went up two week ago then most likely the indexes will decline deeper. Yet, if the FED manage to push US dollar lower, we may see indexes back to their high levels seen in the beginning of November.

Back to Advances and Declines

Today, during trading hours (see "High Advance/Decline Readings Post"), I have mentioned about extremely high advance decline readings on the S&P 500 and NYSE indexes. The indexes did not moved any more higher after that, yet they still had quite strong gain. The interesting thing is that even indexes had reported strong gain by the end of the day, the advance/decline readings were not any more strongly bullish at the market close. The advances topped declines on NYSE by a margin of 3 to 1 only. If during the trading session volume of advancing stocks in the S&P 500 sector was 40 times bigger than the volume of the declined stocks, then by the end of the day the ratio is 8 to 1 only.

Overall, we had today strong bullish trading only during the first hour after the opening Bell. The rest of the today's trading session the indexes were moving mostly side-way and even modestly declined. Because of this side-way action, many technical indicators on 5-min and 15-min charts suggest weak opening tomorrow. Some technical indicators on 30-min and hourly charts followed the morning up-move and turned bullish. Yet, the longer-term charts remain to be bearish.

Volume and US Dollar

Just addition to the previous post.

Another two not very bullish points: the current rally is supported by strong volume surges and actually US dollar is going up. Together with extremely high Advance/decline readings and increase in volatility this does not look very well.

I will repeat myself one more time. I would not play up on this rally.

High Advace/Decline Readings

As emini index futures suggested yesterday, the indexes are up. The US Dollar is down which could be the cause.

The indexes are up too strong. The current up-move is not very healthy by two reasons: it will bring the volatility up and advances and declines are hitting extremely high levels (known as overbought levels in technical analysis).

From
http://www.marketvolume.com/quotes/advance_decline_sentiment.asp
you may see:

For the S&P 500 advances beats declines by margin of 480 to 13. On the Nasdaq 100 advances beat declines by margin of 95 to 5.
Advance/Decline issues ratio on the S&P 500 hit 19 and advance/decline volume ration hit 40. See advance/decline sentiment at
http://www.marketvolume.com/quotes/advance_decline_sentiment.asp?s=SPX

I would not trade up - we may go down in the same way we are going up at such conditions.

Advances and Declines

Past week's decline has been supported by high bearish volume in the Nasdaq 100 sector. As a result today's session was under the Nasdaq 100 attempt to push the market higher while other indexes remained flat. US Dollar index was down today and it was another factor that hold the market form further decline.

We had strong decline yesterday during which advance/decline volume and advance/decline issues on the S&P 500 and NYSE composite indexes has hit very low readings. As a rule such readings in technical analysis are considered with oversold condition and panic selling and are usual noted at the bottom of a correction. However, current decline did not generated any noticeable bearish volume surges on the S&P 500, NYSE Composite and Russell 2000 indexes. Yes, we saw high volume on the Nasdaq 100, however, the Nasdaq 100 index is not volume leading stock market index. Because of these low advance/decline readings we may see some bounce up, yet, I'm skeptical that it could be end of correction.

From the money flow prospective, we may see positive money flow on 1-min time-frame, however, 5-min, 15-min, 30-min and hourly time-frames have negative or very close to negative money flow on the S&P 500, DJI and Nasdaq 100 indexes. From this point we may expect negative trading tomorrow at the market open. However, emini index futures are already traded now about half of percent up which, on other hand, suggests positive trading tomorrow at the open.

I would continue monitoring US Dollar index, as it looks like S&P 500 index continues to move in opposite to this index direction.

US Dollar up - Stocks Market Down?

As I mentioned yesterday "positive signals on the intraday charts should not be considered as strong signals" - we had today some positive trading, however, by the end of the day the indexes moved back down by ending the today's session flat.

Right now, all intraday time-frames (1-min, 5-min, 15-min, 30-min and hourly) an all main indexes (Nasdaq 100, S&P 500, DJI and Russell 2000) indicate negative Money Flow. This may suggest bearish trading tomorrow.

The US Dollar index has move today up and break its highs seen on October 19 an 27. Now, with some degree of confidence many trader may consider that recovery on the US Dollar is confirmed (which started on November 4, 2010). As I previously mentioned, this may push some traders to leave the stock market and move into currency and it could be additional force that may stimulate bearish trading.

The only thing that could be considered slightly positive is that Advances and declines are trending toward positive sentiment on hourly chart, yet declines are still dominant.

Beginning of Bearish Market? or just short-term correction?

We had first week of clear decline since beginning of September. It was not a strong decline and this decline did not generated any panic (we did not see any strong volume surges to the price decline). However, this decline has pushed many technical indicators closer to the bearish sentiment on the longer-term charts (1 bar = 1 day and higher time-frames).

Smaller time-frame charts, on other hand, have some bullish signals. Such, on 15-min and 30-min charts I may see money flow trending toward positive area. Yet, these time-frame are short-term and they cannot generate signals beyond tomorrow opening. From these charts I may say that there is some odds that we may see positive trading tomorrow. Big bearish volume surges on the Nasdaq 100 on November 11-12, 2010 may point to possibility of bounce up as well. Again, the Nasdaq 100 index was the only index that has strong bearish volume during the last two trading session. Therefore I would not rely strongly on the Nasdaq 100, right now.

As I already mentioned, 1-day and longer-term charts are moving toward negative sentiment. Hourly charts are bearish. This is another reason, why positive signals on the intraday charts should not be considered as strong signals.

Tomorrow, I'll be watching 15-min, 30-min and hourly charts. If the indexes follow the signals on the 15-min and 30-min charts and we see up-move then I would be watching hot it may affect money flow on hourly charts. I think US Dollar index it worth paying attention as well. If it goes up and breaks October 19 and 27 highs then it could generate another wave of selling on the stock market.

Keep in mind that over past week we see some increase in volatility. If we see further increase in volatility it may mean that the current movement down could grown into a strong correction.

Slow Decline

Slowly, but steady the indexes are declining. If you take look at DJI daily chart you may say that the DJI index has been in slow decline for five trading session in a row. Yet, this decline is so slow that only now DJI has wiped out all one-day gain it has on November 4, 2010. The S&P 500 is still above its end of October levels. Maybe this is why the today's decline does no generate any increase in volume on this index

The Nasdaq 100 is still traded on higher than usual volume. However, as on all indexes, Nasdaq 100 trading volume is steady - we do not see any volume surges (sudden increase in volume) which would suggest that so far this decline does not create any panic (no stop-losses are hit).

So far money flow on all time-frames is negative. I'm watching 5-min and 15-min charts. We may see some bounce up or side-way trading during today's session, yet by the end of the day I think the indexes will be down.

Fast Analysis

Just short analysis:

Money flow on 1-min and 5-min charts is negative.
On 15-min chart money flow is positive.
On 30-min chart is neutral, yet close to negative.
Hourly charts have negative money flow.

Strong volume was seen today on the Nasdaq 100 and DJI. While on daily charts this volume looks bearish (these indexes are down for the day), on intraday time-frames this high volume is clearly bullish. On the Russell 2000 and S&P 500 volume was at its regular level - no greedy buying and no panic selling.

Advances and declines on most of the indexes continue to be in the negative area.

US Dollar Index hit the tops seen on October 19, and October 27 2010.

There are no nay big economic reports tomorrow - only consumer sentiment from the Michigan University.

Overall, despite the today's recovery from initial swing down, I'm still bearish. Yet, I could be wrong, therefore I would recommend checking charts by yourself.

Nasdaq 100 versus S&P 500

It was very negative opening. We have not see such swing down at the market open for a while. However, the indexes are moving up. However, they are moving up on high volume. High trading volume could be seen on the Nasdaq 100 and DJI indexes. However, the S&P 500 index's volume is just a little bit higher. Russell 2000 volume is normal. High volume tells that the morning's sing down hit sensitive level and many traders from the Nasdaq 100 and DJI sectors started to sell. On the other hand big number of traders started to buy and pushed these indexes up.

I would not think that this recovery will be long, mainly, because I do not see high volume on the S&P 500 and Russell 2000 indexes and I do not think that the bullish traders on the Nasdaq 100 will be able to hold the entire market.

Money Flow and Volatility

We had up-swing at the market open and then decline as I expected yesterday. However, around 11am the indexes started advance as US Dollar started to decline. If you compare today's US Dollar Index and S&P 500 index you will see that their trends are exactly opposite. As I already mentioned several times, it looks like current stock market investors are looking at US Dollar trend.

Regarding money flow: the money flow continue to stay negative on the hourly charts. Today's advance did not greatly affected it. On 30- and 15-min charts it have became positive (I have mentioned yesterday that I would watch these charts). Yet, on 5-min chart money flow is becoming negative again.

Overall, from the money flow prospective I would say that the main sentiment(hourly chart) continue to be weak, in addition we may have decline tomorrow at the market open (5-min chart). If this happen and we see change in the flow on 15- and 30-min chart he we may have some strong decline.

Other things to consider is :

- The ETFs already dropped after the market close and index emini futures are already traded down. So most likely we will have weak opening tomorrow.

- The US Dollar index is close to its high seen on October 19 and on October 27, 2010.If this level is broken many traders may consider that the US dollar is not any more in down-trend. It could be additional fuel for stronger decline on the stock market.

- There are not a lot of economic reports, so most likely the trend will be guided mostly by technical analysis over the next couple of day (should not be surprises).

- Over the last couple of trading sessions we have an increase in volatility. I'll be reducing bar period setting on most of my intraday technical indicators to avoid a situation "when it's too late"

Money Flow

Before today's market close, I have mentioned that if the indexes continue their decline by the end of the session the odds should be good for bearish market tomorrow. The indexes declined, however, during the last 10 minutes of trading we had a bounce up.

Because of this up move, the indicators on 1-min and 5-min charts started to move toward bullish sentiment, which may suggest that we may see some bounce up tomorrow at the market open. However, money flow on the 15-min, 30-min and hourly chart remains to be bearish which suggests overall bearish outlook for tomorrow's session. Still, if we have positive move tomorrow at the market open, I would monitor 15-min and 30-min chart to see how it affects money flow on these time-frames.

US dollar pushes indexes down

Dollar goes up, indexes go down. This is going to be third positive session in a row on US Dollar. If the dollar keeps positive ground, there is a possibility the indexes could be come more bearish.

My technical analysis continue to be bearish. Money flow on 30-min and hourly charts became negative. we may see start of increase in bearish volume. Looks like today's decline starts to make some worries.

If the indexes continue their decline the odds could be good to have negative session tomorrow as well.

Flat Trading

The indexes continue to be flat. The US Dollar at the opening was down, respectfully indexes were up. Yet, the US Dollar almost recovered, while Nasdaq 100 is still trying to pus up. DJI and S&P indexes quite flat.

The advances and declines continue to move toward negative area. Because of the flat trading, money flow and volume indicators are flat as well. By the same reason, price based indicators are turning into bearish slowly (price trend lost its momentum).

There are no big economic reports today and we may see another quiet day. I'll be on the 30-minute and hourly charts. In addition I'll be watching US Dollar. Last two trading sessions it was up and there is chance it will be up or at least flat today as well.

Advances and Declines

We have second session in a row of side-way trading. If up-move on November 4, 2010 is a beginning of a new up-trend, then it should not be like that. The indexes are loosing their bullish momentum. So, there is other possibility that that up-move was just a short-lived swing.

The volume is down and it looks like the bulls are not dominant. Because of the side-way trading over the lat 2 trading session the money flow on intraday charts is undefined. However, advance/decline indicators are moving toward negative area and advance/decline volume on the DJI and S&P 500 is already in the negative area. because of that I would assume that there is a possibility that bears may take over and we may see some move down today by the end of the day or tomorrow at the market open. Yet, it could be too early to make any prediction for tomorrow's trading - we still may see some new indications.

S&P 500 Index Chart

We had quite strong break through from the side-way trading on Thursday, November 4, 2010. The last two days of the week were accompanied by very strong bullish volume which very clearly could be seen on the Dow Jones Industrials (^DJI) and the S&P 500 (^SPX) indexes.

We had strong bullish volume surges on many indexes in period from October 12 until October 21, 2010. We have not see any reversal followed that strong bullish trading (I would not call a 2% retracement as a correction or reversal). Now, again, we have strong bullish trading...

At the current moment many technical indicators suggest good odds of further advance. This is mainly because of the advance during the last two trading sessions. However, I think that we should remember that the same technical indicators suggested a possibility of a correction just a week ago. I would not relay heavily on technical analysis right now. It looks like other factors (possibly fear of dollar inflation) move big player into the stock market, while other big players are dumping stocks.

We had strong move up and by many indicators (volume and advance/decline based) the stock market could be considered strongly overbought. The high trading volume surges over the last three weeks confirms that - there are many big traders who consider market overbought and who is dumping in big volumes to greedy  buyers. It is difficult to say who will win in this battle. Keep in mind that over the last two years there are big companies who reported big earning and who did not invested earned many in anything but was sitting on cash. Now, when the Government is officially talking about how much good an inflation could bring to the economy and FED announcement about printing and pumping another $900 billions, those companies could be buying. Of course there could be other explanation of the last two days up-move, however as technical analysts we should not worry for the cause, but watch where the money go.

Now, when the market is far up from the Augusts' lows, it would be logical to have strong correction. The question is when. Right now I would watch S&P 500 SBV Oscillator (bar period = 20) on daily chart (1 bar = 1 day). Starting from the beginning of September SBV Oscillator show positive money flow. The money flow is still positive on that chart. I would wait when I see decline in the flow. Yes, daily charts are longer-term charts and they have some lag in signals. However, if we face a correction I would expect it to be quite strong.

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

High Volume

It does not looks like the US indexes are rushing down, despite the fact the US Dollar Index is up and already recovered completely from the yesterday's losses.

The indexes are still traded on the high volume. I would say that so far the situation is uncertain and we still have odds of the market moving in either direction. If yesterday's up-move is a beginning of a new up-trend then it would be logical to have positive movement today as well. If yesterday's up-move just short-term bounce up (result of dollar-inflation panic) then it would be logical to today slide down.

High volume at the current high-price level could mean that we have many traders rushing into the market (could be the same result of dollar-inflation panic), yet we have equally big number of traders who is selling short and who is dumping stocks (could be result of analysis that shows overbought markets). We do not know which group of traders will win and what sentiment will be dominant. We may just wait when volume activity starts to decline and watch where the market goes.

P.S. At the current moment I'm on 5-min and 15-min S&P-500 chart. So far money flow on 5-min chart is negative and on 15-min chart money flow moves toward negative area

US Dollar

I was very interesting day today. The indexes have broken the side-way and uncertain trading trading by strong opening. The indexes not just broke - they "hold the ground". Even the Nasdaq 100 did not moved higher after the morning's swing, the DJI, S&P 500, Russell 2000 and other indexes were in positive move the today's entire session.

Today's advance has been supported by strong bullish volume on all indexes. As a rule strong bullish volume could be noted at the begging of a new up-trend or at the end of the up-trend. I would not try to guess right now what is possibly today's volume could mean. However, if we do not an equally strong decline tomorrow, I would say, that the odds of bullish market would be higher.

On the other hand it looks like the current up-move was strongly based on the decline in dollar. The other interesting thing is that today we had record high volume on the US Dollar index during its decline. We had similar volume behavior in US Dollar index in period from October 2009 until December 2009. If the US Dollar continues to slide down for another month we may see positive trading on the stock market during that period of time.

Over the past month we had strong advertising pressure that the US Dollar should be artificially weakened and that would greatly help the US economy. It seems like yesterday's FED announcement to print another trillion and pump it in the economy has pushed many investors (who was sitting on the money) into panic. Even the money are not printed yet and are not injected into the system the fear of inflation could push those investors who has a lot of cash to buy stocks. Respectfully, this may may the stock market on positive sentiment.

P.S. At least the Government will sell GM stock on rising trend an at the top.

Indexes Up

Index futures already before the Bell pushed the indexes 1% up. It is quite strong statement, especially taking into account that indexes where traded at their tops. Let's see if the sentiment in the commodities market is piked up by stock market traders.

Will keep my eyes on 5-min S&P 500 and Russell charts. At the same time I would be tracking IS Dollar index. It looks like it could be the major player that pushes the market right now.

Russell 2000

Have been quite busy over the last couple of days. As I mentioned on Sunday we had positive opening on Monday and then we had quiet trading until today's FED's announcement. The news about another stimulus with size of 900 Billions have pushed the US dollar down and the indexes (stock market) reacted by the move up respectfully.

As a rule, the FOMC meetings are supported by increase in volatility and volume. Today's trading session was not an exception from this rule. As a result we have strong daily bullish volume. At the current moment the indexes are at their top levels - some indexes are a few points below and some are a few points above.

From the money flow prospective the the Nasdaq 100 indexes show positive flow on 1-,5-,15- and 30-minute charts. On the hourly chart the Nasdaq 100 money flow could be considered negative. Similar analysis could be seen on the S&P 500 and DJI indexes. The Russell 200 index has been traded on higher than other indexes average volume over the last couple of trading sessions and have slightly different money flow. With Russell 2000 index we may see some weakness in money flow on 5-minutes and 30-minutes charts.

Overall, there are some signals that we may see positive trading tomorrow. Yet, again, taking in the account overbought signals on the longer-term charts I would not rely on these signals. I would rather stayed in cash until clearer longer-term trend.

For tomorrow's intraday outlook, I would focus on the Russell 2000 5-min charts. Since it has been trading on the higher volume lately, it has clearer signals - the Russell 2000 5-min chart already shows decline in money flow towards bears.