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IDT - Index Day Trading
Using "Daily Market Outlook
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Market Stage
(10/30/2009) From Thursday's report: 'At the same time, note that SBV oscillator readings are still low on the NASDAQ 100, suggesting there might be a chance we could see a retest of recent market lows.' Today, the major indexes declined strongly and dropped below these lows.
On 60-day charts with a 20-period SBV, we are now seeing declining SBV oscillator readings, with the following values found at the end of today's session: Minus 32% on the Nasdaq 100; minus 31% on the S&P 500; minus 16% on the Dow. While declining SBV oscillator readings are bearish, we now see a divergence between the price and SBV values: While price made new lows, SBV oscillator readings stayed above their recent lows from October 27, 2009.This divergence suggests the current downside push may soon become exhausted and we that we could then see an upside reversal.
Two further factors that suggest the possibility of an upside reversal include: (1) A large accumulation of bearish volume, and (2) Extremely low readings on the advance/decline issues and volume ratios. The accumulation of bearish volume visible on the 60-day charts is one of the strongest we have seen since March 2009. The extremely negative readings of the advance/decline issues and volume ratios on the S&P 500 (and on other indexes as well) - both for today and on October 28, 2009 - suggest that the market is 'oversold'.
On 1.5-year charts with a 10-period SBV, we are seeing declining SBV oscillator readings, which is a bearish sign. At the same time, we are however starting to see an accumulation of bearish volume on these charts which may soon serve to push the indexes higher.
Market Status
(10/30/2009)
Market Performance:
| Last | Change | Volume | A/D Ratio | | S&P 500 | 1,036.01 |  | 29.68 (2.79%) |
| 5,015,226 | 0.03 | | NASDAQ 100 | 1,667.13 | | | 44.14 (2.58%) |
| 915,332 | 0.02 | | DJI | 9,710.54 | | | 248.41 (2.49%) |
| 1,163,165 | 0.00 |
Turbulent market action has been dominating recent sessions, and today was no different. After yesterday's exuberant rally - the best seen on the Dow since mid-July - the bears pummeled the broad market today, completely wiping out yesterday's strong gains and driving the indexes considerably lower. With October trading concluded, today's losses snapped a seven-month winning streak on the S&P 500 and on the NASDAQ Composite. In today's session, the NASDAQ 100 index lost 2.58% (it saw a weekly loss of 4.93%), the S&P 500 tumbled 2.79% (for the week, it was off 4.04%), and the Dow shed 2.49% (it closed the week down 2.63%).
Today's volume production on the S&P 500 amounted to 5,015 million shares; this volume output exceeds the index's average daily volume generation seen over the past three months by 18%.
NASDAQ 100 - 10/30/2009.
1-day Intraday, Modulated Volume.
Volume Analysis:
9:30 - 13:35: The modest gap down opening seen on the NASDAQ 100 this morning likely did not prepare bullish market participants for what was to follow - a strong down-day that completely wiped out all of yesterday's sizable gains (particularly the impressive gains seen on the Dow and the S&P 500). Early on, the NASDAQ 100 chopped around aimlessly for the first half hour or so; it then lapsed into a steady downtrend that accelerated sharply after 11 o'clock. Volume production did not start to ramp up in earnest until 11:30, at which time we saw the building of a first, very large bearish volume surge (bearish volume appears in red on the SBV oscillator pane). As the index continued to decline, more and more bearish volume accumulated, peaking in the session's first bearish volume spike at noon. With the index dipping lower again around 12:20, a renewed wave of bearish volume accumulated, generating a second bearish volume spike that peaked at approximately 12:40. This in turn was followed by a third and a fourth bearish volume surge, peaking at approximately 13:00 and 13:30, respectively. By the time the index bottomed for this session (i.e., around 13:35), it had output a very large amount of bearish volume (consult a 10-day chart for a comparative view). This pronounced buildup of bearish volume was a signal that the bears' efforts to drive the market lower were now becoming exhausted and that we might anticipate that the market could find support near current levels and/or see an upside reversal.
13:35 - 16:00: Afternoon trading brought some stability to the market (catalyzed by the large output of bearish volume discussed above); however, the bulls never really developed much upside momentum. They were however able to stem further losses as the index did not dip much below its earlier 13:35 low; still, the index closed virtually at its low of the session today, down a hefty 2.6%. A 5-day chart of the index shows clearly that today's session produced a sizable surplus of bearish volume.
Short Term (lasts a few hours to a few days): The market surprised us with a strong downside push today whereas we had been anticipating a consolidation after yesterday's strong rally. The major indexes thereby continued the recent confounding trading patterns and high volatility (or perhaps a better word: turbulence). As noted above, the major indexes today snapped a seven-month monthly winning streak, with October bringing a first monthly down-close since the extra strong market rally that boosted the indexes off their March lows.
In regard to our volume analysis methodology, relevant is that today's highly bearish session generated a second, very sizable bearish volume surge (best seen on 10-day charts of the major indexes). We now see twin-peaks, with the first bearish volume spike appearing on October 26. This buildup of volume is most pronounced on charts of the Dow and of the S&P 500; it appears to lesser extent on the NASDAQ 100.
Our short-term outlook suggests there is still a risk for modestly lower levels. At the same time, the odds for a perhaps vigorous bounce in the not too distant future have now grown considerably. We see two possible scenarios: (1) The market trades modestly lower first (perhaps gapping down) and then bounces from a lower level; (2) The market trades higher first but then sells off again, dipping to a modestly lower level from which it then recovers slowly. In any event, we still see risks to the downside but bearishness should start to dissipate within a few sessions (unless we see a strong output of bullish volume on any upside pushes).
Analyst's Daily Tip:
Charts: Direct Zoom Function
With a single click, you can switch views on our volume charts. For instance, you can move directly from a one-year view to a one-day intraday view. If you press the F1 key before changing timeframes (even repeatedly), the cursor will remain fixed on a specific date. This feature is useful, for instance if you zoom directly from a five-year view to a one-day chart.
Critical Volume
Critical volume represents the amount of volume that is required to cause the market to Reverse. Critical volume is generally equal to or greater than the volume surge that caused the trend prior to the Reversal.
Critical volume can manifest either as a large, sudden increase (surge) in the VMA or as VMA Surge (a combination of several concurrent volume surges).
Financial Press Overview:
After yesterday's almost euphoric rise, today's slump hit the bulls hard. Looking back over the last nine trading days or so, the sharp increase in volatility and in the intraday ranges of the major indexes (not to mention investor sentiment) becomes apparent. Some market observers attribute this sudden volatility to the Forex market, which has recently shown a large influence (correlation) on the stock and commodities markets (with a consistently lower US dollar contributing to sizable gains in commodities and equity markets). Today, the US dollar continued its recent surge against a basket of major currencies (yesterday, the inverse pattern could be observed).
However, there were also economic news releases that contributed to today's significant u-turn in the market. Yesterday, market observers had cheered rising GDP numbers; today, the health of the US consumer became a key concern after the Labor Department announced that in September personal spending had declined by 0.5%, the largest slide in nine months. At the same time, new data shows that personal income came in flat in September (as compared to August). Also perceived as negative, the latest reading on the Reuters/University of Michigan consumer sentiment index came in lower as well, declining from a reading of 73.5 in September to a value of 70.6 in October.
Market observers note that the volatile trading we have been seeing may continue for the time being until we get more stable (or improved) employment numbers. Consistent income and spending growth can only come with labor market improvements, according to one economist. Next week will bring a significant amount of new data from the economic front; consult the section below for details.
Exacerbating today's selling was a renewed fear about the health of the financial sector. Making headlines was CIT, which appears headed for a bankruptcy filing. Adding to the malaise, an influential market analyst suggested Citigroup would have to take $10 billion of write-downs this quarter. And finally, well-known investor Wilbur Ross voiced his opinion that the US was currently at the onset of a 'huge crash in commercial real estate.'
Key economic data for the week starting November 2, 2009. Numbers shown are consensus estimates (market anticipates this value) and prior value.| Monday: |  | 10:00 AM ISM - MANUFACTURING (Oct): 53.0 / 52.6 |
| Tuesday: | | NEW VEHICLE SALES (Oct): 9.8M / 9.2M
10:00 AM FACTORY ORDERS M/M (Sep): 0.8% / -0.8% |
| Wednesday: | | 8:15 AM ADP EMPLOYMENT CHANGE (Oct): -190K / -254K
10:00 AM ISM - NON-MANUFACTURING (Oct): 51.6 / 50.9
2:15 PM FED RATE ANNOUNCEMENT (Nov): 0.0 / 0.25% |
| Thursday: | | 8:30 AM CONTINUING CLAIMS Oct-24: 5750K / 5797K
INITIAL CLAIMS Nov-01 (H): 520K / 530K NON-FARM PRODUCTIVITY (Q3 P): 6.2% / 6.6% |
| Friday: | | 8:30 AM NON-FARM PAYROLLS (Oct): -175K / -263K
UNEMPLOYMENT RATE (Oct): 9.9% / 9.8%
AVERAGE HOURLY EARNINGS M/M (Oct): 0.1% / 0.1%
MANUFACTURING PAYROLLS (Oct): -48K / -51K1:00 PM CONSUMER CREDIT (Sep)' -10.0B / -12.0B |
Index-Day-Trading - Market Research Team © Index-Day-Trading
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