How to set the system with alerts based on the chart scan results

http://www.youtube.com/watch?v=oXfLwW3KKeI

It could be a time to buy AAPL, yet conservative traders may still wait for better confirmational points. I have already mentioned on January 25th of 2013 that it is a time to buy at least some amount of the AAPL shares and if it drops another 15-20% we may buy again. After my announcement on January 25th, the AAPL stock has moved up and we may already see some reversal conformational point. However, the AAPL is still in the dangerous area - it is still below its down-trend line, money flow is still negative and Volatility adjusted MACD is still in the negative area. As I stated above, the conservative traders may still wait for stronger bullish signals and I would recommend monitoring money flow (When SBV Oscillator becomes positive) and monitoring V-MACD (Volatility adjusted MACD) when it becomes positive.

Most of the technical indicator on the S&P 500 index show positive sentiment. Volatility is a little bit up since January 23,2013., yet, it is still at low level to be worried about any strong correction. Another, point worth noticing that we start to see increase in trading volume on the index's up-side. Such, on January 29,2013 small volume surge lead into 2-day small correction. Today, when the S&P 500 index moved up we had another small volume surge which may halt the current advance. However these volume surges are relatively small to have an impact on the longer-term trend. Taking into account low volatility, even we see some reaction on this volume surge, it is difficult to expect a strong correction.

It is worth mentioning that the current up-move is lead by the Russell 2000 and S&P Financial indexes. S&P 500 and DJI follows them while the Nasdaq 100 moves mostly sideway. While I still on the bullish side for the S&P 200 I would continue monitoring Russell 2000 and S&P Financial index as they could the first to slide into correction.

Just a quick follow up of my "GOOG Stock" post a couple of days ago (on October 4, 2012) where I pointed to the big volume surge and mentioned how such strong volume may affect GOOG stock trend.

Now, you may see that the GOOG stock does not moves up any more. Couple of percent down does not looks like a big deal, yet slowly many technical indicators are starting to point to change in the sentiment towards the bears. My technical analysis shows this stock to be overbought and the possibility of stronger correction. It could go down, it could bounce up to the most recent highs and then go down again. I do not expect any strong movement up in the coming months, in opposite, I expect to see stronger move down.

See the GOOG stock charts with elements of technical analysis below.

A little bit about Apple (AAPL) stock. I know that this is a good and stable company which is always introducing new products and which together with Google (GOOG) goes on the edge of competition. However, stocks go up, stocks go down. 20% up over 3-month period (July - September) looks a little bit unnatural for me and it looks like right now this stock is going into a correction.



As you may see from the AAPL stock chart above, many technical indicators are bearish for this stock. You may plot another indicators and you will see the similar picture. The main point is that at this moment Selling volume dominate and sellers are beating buyers and number of sellers is increasing (SBV Oscillator is declining). The good news is that volatility is stable, which means that the correction may not necessary be big. We see some increase in AAPL trading volume, yet the volume level is still low to recognize it as panic selling.

The AAPL dropped below 62% Fibonacci level and the next 38% level will be at 590. I'm not a big fan of Fibonacci, yet many institutional and retail traders are using Fibonacci which makes these levels trend's sensitive.

In conclusion I would say that most likely we will see further slide on the AAPL stock, at least until the AAPL earning are published. For long- and mid-term traders who likes AAPL stock I would recommend waiting for big volume surge during the price decline - it would show that big money consider this stock dropped enough to be attractive to buy. The big money go into a game and you can buy (after you see volume surge is halting).

By following my previous post where I brought to your attention to the list of overbought stocks and ETFs, I have decided to post GOOG (Google) stock chart which should explain why we should expect correctional reversal down from these stocks.



You may check your technical analysis and as you see from the chart above, GOOG stocks looks bullish and technical indicators indicate strong bullish trend. However, strong bullish volume surge in the most recent past indicates that big number of GOOG shares were transferred from one group of traders to another. Such strong volume may lead to the shift in supplement balance with further reversal down. If you scroll GOOG chart back in the history, you will see that each time after similarly big volume surge the GOOG stock was reversing down.

It does not necessary meat that GOOG stock hit the top and tomorrow we will see a reversal down. Most likely it will be traded at least side-way and even up (as we see analysis is bullish) for same time. However, I would say that this sock is highly predisposed to have a correctional move down. Furthermore, from this point of time I would watch this stock closer and paid more attention to the changes in the sentiment on my technical indicators.

Below I list 9 overbought and 10 oversold stocks and ETFs selected from the MarketVolume's stock filter - go to the MarketVolume.com website and select the "Overbought Stocks" from the "Stocks & ETFs" drop down menu at the top of the page. You should see different stock selection references in the left hand menu. I used three of them:

• "Socks in Action"
• "Overbought Stocks"
• "Oversold Stocks"

After brief visual analysis of listed stocks I selected a few of them on my option worth attention.

9 overbought stocks and ETFs

EWH - iShares MSCI HONG KONG IN
GOOG - GOOGLE
CAG - CONAGRA FOODS
IAU - iShares GOLD TRUST
GILD - GILEAD SCIENCES
ACN - ACCENTURE
BRK.B - BERKSHIRE HATHAWAY
NYB - NEW YORK COMMUNITY BANCOR
TSM - TAIWAN SEMICONDUCTOR

I checked all the stocks above on charts - they were in or less strong up-trend and they had volume volume surge which may mark the end of the recent up-move. As a rule a big volume surge at the top of up-trend could mean that some big investors decided to fix the profit by dumping their shares to the greedy buyers. You have to bear in mind that that volume surges predicts a possibility of changes in a trend and they do not tell you that these stocks are already reversed into down-trend. Overbought does not mean the stocks listed above will crash down from this point. It mean that these stocks are predisposed to reverse down or at have a correctional move down. I would say these stocks are worth applying additional deeper analysis and monitoring as on my opinion there are good odds some of them will reverse into a correction.

 10 oversold stocks and ETFs

QCOR - QUESTCOR PHARMACEUTICALS
ADTN - ADTRAN
CIG - ENERGY CO of MINAS
ETP - ENERGY TRANSFER PARTNERS
MSCI - MSCI
IHS - IHS
ZUMZ - ZUMIEZ
AMTD - TRADE AMERITRADE HOLDINGS
EDR - EDUCATION REALTY TRUST
JBL - JABIL CIRCUIT
AVT - AVNET

The same as with overbought stocks, all these oversold stocks are currently sliding down and have big volume surge at the bottom. This big volume may indicate that big investors became attracted by low priced stocks and decided to buy in big volumes from panic sellers. Again, the same as above, it does not mean these stocks will reverse up today, yet, I would say, they worth attention- applying technical analysis and monitoring.

September had a modest advance. I would not expect having a strong advance in October as well. So far, I do not see enthusiastic reaction on any positive economic news. Plus the uncertainty with election. Plus Europe: Greece trouble, Spain Banks asking for bailout, Inflation in Russia, Slovenia could be added to list of bankrupts.

From the technical analysis prospective so far daily S&P 500 chart (1-day = 1 bar) suggest positive trading for October (see the S&P 500 chart below). Volatility Adjusted MACD is positive, True Strength Index is positive. Advance decline Oscillator is moving up after being in red as a result of small retracement in the second half of September. 

On the other hand, we had two big volume spikes in the middle of September. After that the major indexes (S&P 500, Nasdaq 100, Russell 2000 and DJI) moved modestly lower. Plus we have increase in volatility. Volatility still remain in the safe zone, yet should it continue climbing higher I would start to worry above stronger correction down when it reach 1.2% on the S&P 500 ATR% (Average True Range in %) with 7-bar period settings.

Comments to the S&P 500 charts above:

- the volatility is quite down - see ATR (average true range) - this is very strong bullish sign;
- we may see some oversold signals on the SBV (Selling and Buying Volume) oscillator, yet they are still at positive levels and are bullish;
- some bearish signals could be seen on the McClellan Oscillator and MACD;
- advances and declines continue being positive by suggesting dominance of bullish sentiment.

Overall, we may see some signs of the possibility of a correction down, however, at such low volatility level we cannot expect any strong movements down. Even in case of a correction the odds are good of having the market back to its high levels.

Watch out for the strong output of bullish volume today after noon and until 2pm.This strong volume during the price up move could be seen on all main indexes including the S&P 500, DJI, Nasdaq 100 and Russell 2000. After the third session of side-way trading (excluding strong opening on Tuesday January 3, 2001) it could be a sig of possible decline, at least in a short term. The money flow is already moving into the negative area on 5-day charts and money flow started to show weakness on the 1-day charts. If it continues this way we could be waiting for negative trading tomorrow.

In the previous "Index Charts" I have posted yearly charts of the S&P 500, Nasdaq 100 and Russell 2000 indexes. In this post I complete the series of index chart by adding Dow Jones Industrials (^DJI) yearly chart with plotted technical indicators.

Charts 1:  Dow Jones industrials (^DJI) index charts for 2011 year


By following these main indexes you may see that last year trading has been pretty much in side-way volatile trend with the main action in the begging of August 2011 when the indexes substantially dropped down. It is difficult to call this decline as crash as after the indexes had "lazy" 5-month recovery. Even the main indexes (S&P 500, Russell 2000, DJI and Nasdaq 100) did not recovered far from the August's decline we may see some bullish longer-term indication. I would name the drop in the volatility as the main bullish factor at this moment, yet, the volatility is still above the levels we saw in the beginning of 2011. The rest of the technical analysis does not show strong bullish long-term signs.

I have selected longer term technical indicators on theDJI chart above and I would not say that 2012 prospective is very optimistic. Even the volatility down from its high levels, it is still high for long-term bulls to have confident trading. If we take a look at the recovery after 2008 stock market crash we may say that period from March 2009 until May 2010 could be marked as  the first wave of the recovery (long-term uptrend).The period from July 2010 until May 2011 could be market as the second wave of the up-trend. And, we may say that since October 2011 we are in the third wave. It is difficult to say how long the third wave is going to last but we may notice that this wave is not the strong one and it could be the last wave before a recession or long-term down-trend.

Charts 1-3: Russell 2000, Nasdaq 100 and S&P 500 index charts for 2011 year

If you check 10-year S&P 500 chart you will see that the stock market has been highly volatile (big swings up and down) over the past couple of month. We had something similar at the beginning of 2008. If you scroll the chart back you will find similarly tall price bars in 2000. Volatility is an aspect of technical analysis, however, it gives some insides of fundamentals - it tells that at the current moment, the same as in 2008 and 2000 the big institutional investors are very sensitive to political and economic news. Most of the uncertainty and volatility comes from the Europe. Whatever they do in Europe, their debt is not going to disappear magically overnight and most likely we will have such volatile trading for the time being. The financial sector is affected by that mostly. If you check C (City group), BAC (bank of America), JPM (JP Morgan) - who was lending to European countries - you will see that they are in strong decline since May 2011. We already know what could happen if such big institution will ask for another bailout. I’m not doing fundamental analysis, yet, from the technical analysis prospective I think we may see that the stock market is very uncertain which could be associated as period before crash or longer-term recession.

There are several approaches that could be used in the highly volatile market.

1. Some trader may prefer do not hold position (open trade) overnight and over week-ends, especially long week-ends. You never know (unless you have access to the inner circle) what is going happened overnight and how it may affect morning trading.

2. Some traders, especially long- and mid-term traders may consider increasing bar period of the technical indicators they use -
 it will help to avoid choppy trading and will filter big swings we have now.

3. Some traders, especially short-term and intraday traders, may consider decreasing bar period setting of the technical indicators they use -
 it will make indicators more sensitive and they will generate signals faster (more signals could be expected).

Quite a positive week. Even extremely positive. The main push for the stock market was on Monday after the reports on the "Black Friday" sales and on Wednesday after the FED reduced the borrowing rates. However, the rally up was quite volatile and it is difficult to say that the market was strongly oversold prior to this move up. This move up more looks like the orchestrated by somebody pus-up. There are still a lot of unanswered questions and some of them are

• Doesn't European countries have debt trouble?
• Doesn't all financial institutions and countries who borrowed Greece have to take 50% loss in case of bailout?
• Are there other European countries on the edge of crash?
• Why FED lowered borrowing rates? Is it to make it easier for Europe to borrow and put USA into the bigger dependence or is it because of the S&P's downgrade of the rating of the leading USA financial and investments banks? Are they on the edge of collapse and extreme need of cash?
• Why despite the first substantial drop in unemployment the indexes ended the trading session on Friday flat to modestly lower?

I would like to attract your attention to some of the biggest financial banks in the USA:

• City Group stock (C) is 45% down since February of 2011
• Banc of America stock (BAC) is 62% down since January of 2011
• JPMorgan Chase & Co. stock (JPM) is 35% down since February  of 2011
• Goldman Sachs (GS) is 44% down since January 2011
• Wells Fargo (WFC) is only 24% down since February of 2011 (still downgraded by the Standard & Poors)

Do these financial institutions need another bailout? Are they on the edge to collapse? Are we are not told something? Is the FEDs downgrade of borrowing rates is a "masked" bailout?  All of this is not very pessimistic.

I do not believe those stock market analysts who says that the stock market rallied up this week because it was strongly oversold. I'm sorry, but I'm not buying it. The main indexes (S&P 500, Nasdaq 100, DJI and Russell 2000) are only a couple of percents from their 4-year highs and the indexes cannot be oversold at high levels they are now. In order to be oversold, the indexes have to be in the process of selling (the have to drop) with huge volume at the bottom of selling (bottom of drop). If you take a look at 10-year chart of the S&P 500, DJI, Russell 2000 or Nasdaq 100 indexes (you may check it on MarketVolume.com) you will see that they cannot be called oversold. You may only cal the indexes and stock market oversold if you want to dump something at the 4-year highs. In apposite, on these 10-years charts you will see strong increase in volatility. Try to compare such behaviour of the indexes to the periods in 2008 year before the crash and in 2000 before the crash as well. I do not think you will be very optimistic after that despite such "extremely positive week" we just had.

I'm not a professional in fundamental analysis, but, long-term technical analysis of the main indexes (S&P 500, Nasdaq 100, DJI and Russell 2000)  is not promising anything good. In opposite, you may find a lot of long-term technical signals which would suggest the possibility of the recession.

I have not been writing for the past three weeks. yet, there were no much action beside volatile side-way trading.

In my previous post (See the "Technical Analysis" post on October 30, 2011) I dragged your attention to the strong volume surge seen on October 26-27, 2011. I wrote: "There are high odds that such strong volume (strong action) may cause changes in the supply/demand balance. Now, the simple question is whether there are left enough bullish traders to support further up-move. If not, then we may see down-turn."

It looks like the stock market indeed made a change in supply/demand balance - as after strongly positive October we had mostly volatile side-way trading in November. However, now, the odds are changing again. The negative trading we saw past week has pushed many technical indicators, including money flow on longer-term charts from neutral readings into into the bearish condition. In addition major indexes (S&P 500, DJI and Russell 2000) are moving close to their lows seen on November 1, 2011. The Nasdaq 100 already had broke its lows and could be considered in the confirmed down-trend. The only relatively bullish thing, I could see at the current moment, is drop in the volatility. Yet, a strong drop in volatility is some cases is associated as a climax before strong price move (also referred to as the "silence before a storm").

We still have to keep our eyes on the Europe. Despite the Greece bailout promises there is still trouble in Italy, Spain, Ireland. In addition the "Bailout Money" have to come from somewhere... Another political point that may negatively affect the stock market trend is the "impotence" of the Congress.

Overall, I would say that the stock market longer-term sentiment could be considered bearish and so far I do not see strong technical indicators against it.

Despite the positive trading in October the technical analysis does have some bearish indications. We may see that October's advance was greatly supported by the decline in the US Dollar (See the S&P 500 and US Dollar indexes chart below).

We still may see positive money flow on the hourly charts and other positive indicators such as MACD, Stochastics, RSI, and etc (see the chart below). However, at the same time we may see small increase in volatility, especially over the past week. The fact that we do not see decline in volatility is a bad sign for the longer term-bulls and may suggest that current up-swing could be easily reversed down. Yes, the volatility is lower than it was during the decline/crash in the beginning of August 2011, yet, it is still  quite above the bullish volatility levels seen prior to the August 2011.

The other alerting sign is the strong bullish volume generated on October 27, 2011 - during the strong up-move (reaction on the decision to bail out Greece). It is difficult to assume that this volume was the result of the actions of the long-term bullish traders. On my opinion they would rather wait for the indexes (S&P 500, DJI, Russell 200 and Nasdaq 100) to break their highs. This bullish volume surge is more suitable for mid-and short-term traders. Keep in mind that volume is two side transaction and big volume surge during the price advance means that on October 3-26, 2011 the price was moving up because there were more buying orders of bullish traders and bearish traders were not rushing into the game. However, on October 26-27, 2011 big number of bearish traders came into the stock market and started to sell by satisfying orders of bullish traders buying in greed. There are high odds that such strong volume (strong action) may cause changes in the supply/demand balance. Now, the simple question is whether there are left enough bullish traders to support further up-move. If not, then we may see down-turn.

Chart: S&P 500 chart with elements of technical analysis

 

October was quite a nice month for the US stock market. Most of the indexes (S&P 500, DJI, Russell 2000, Nasdaq 100, and etc) has recovered more than half of their August-September losses. The Nasdaq 100 index actually is very close to its high seen on July 25, 2011.

From one side such positive month could encourage many traders and generate hope that the US stock market is in the new longer-term up-move. We had a number of relatively positive news and economic reports on the US market. Decision to bailout Greece in Europe has added another positive momentum to the market sentiment. However, from other side there are many small disturbing signals and factors that would usually alerted many traders.

1. Unemployment continue to stay on the the same high level. The companies prefer to invest into upgrading of the technology which does not cover increasing working places and in opposite assumes using automated technologies instead of people.

2. Coming deadline and respectfully battle for cut losses in the Government. So far we have not seen any good coming from that.

3. Nobody hiding that coming cut losses will add greatly to unemployment as many Government projects will be closed.

4. Despite the fact that companies have reported good profits, many companies are lowering their expectation for future profits as demand on the product is dropping. The market is oversupplied.

5.  Even the bailout of Greece sounds like a good news the fact that banks will have to accept 50% loss in Greece debt may put some banks on the edge of bankruptcy. In addition, so far, it is not clear where the bailout money will come from.

It looks like my bearish mood, expressed in my previous post "Increasing Volatility"  on September 27, 2011 is paid off by nice decline. I repeatedly mentioned that the crash we saw at the end of July - beginning August of 2012 could be the first wave of the recession and now, when the Russell 2000 and S&P 500 broke their lows set on August 9, 2011 we could say that there is a high probability that we are in the recession - of course not "officially" because Government and news would not like to generate any worries...

Just take a look at the numbers - since beginning of May 2011:
 - the S&P 500 index lost almost 20%;
 - the DJI index lost 17%;
 - the Russell 2000 lost almost 30%
 - the S&P Financial index lost almost 35%

Maybe the numbers above could not be called "the Recession", but, it could be too late if we start to call a recession after the stock market indexes losse more than 50%. An the negative point is that there are nothing positive to possibly push the market back 20% up. In opposite, coming cuts in spending without equivalent increase in revenue may hit the economy, at least in a short-term, down

By going back to the technical analysis, there are a few sings that make me consider the possibility of further decline.

1. First of all, we again see an increase in volatility which is quite a bearish sign.

2. Second thing is that that even some market indexes are traded below and some only lightly above their lows seen on August 9, 2012, the current decline did not generated extremely panic selling. The today's increase in bearish volume was smaller than the bearish volume we saw on September 22nd of 2012 and the today's bearish volume cannot be compared even closely to the bearish volume seen in the beginning of August 2012. This tells me that the institutional bullish longer-term traders (also known as "big money") are not rushing to buy at the current "lows" by expecting even lover prices. Respectfully, the market outlook is that the selling pressure most likely will continue to be dominant.

Of course when you are in short and you are in winning position it would be stupid do not set a stop loss to protect the profit, still, at this moment I would expect to see further development of down move. If this is the second wave of the recession (stock market crash) then I would expect to see the bearish volume at the end of this wave which would be stronger than the bearish volume seen in the beginning of August 2011.

We continue to see volatile swings up and down. This is not a good sign for the stock market and suggests quite shaky mood among traders. Worries in Europe mixed with worries in the USA economy are not a good background for the growth on the stock market. It is understandable that cuts in spending means that some Government's contracts will be squised and some will be shut down, it means more people will be unemployed and all the rest will go from there.

It is difficult to be an optimistic trader at this moment. From the technical analysis prospective, longer-term outlook is not very nice as well. Many technical indicators are showing negative longer-term sentiment. The main indexes (S&P 500, DJI, Nasdaq 100 and Russell 2000) have been in the side-way volatile action since the beginning of August 2011. In a healthy market the indexes are usually traded very short time at support level and spend more time at the resistance. Now, on the longer-term charts you may see two months of volatile trading at the support level and this is not a good sign.

When we go deeper into intraday charts we may see some positive (bullish) signals on some technical indicators at some moments. However, it is difficult to consider them as a strong signals and it is difficult to trade them. Strong swings at the market open do not let majority of short-term trader to open or close a trade at better points and I believe that there are many traders who prefer to remain in cash until the stock market is traded in the side-way. Still, for those short-term trader who still is in the game I would say that taking into account negative longer-term sentiment it is could be quite risky to trade short-term bullish signals.