Technical Talk: Does Volume Matter Anymore?October 17, 2011 @ 12:37 PM EST
Although we disagree with the idea that "the tape tells all," it is important for all traders to stay on top of key technical happenings on the charts. Below is our current "executive summary" take on the State of the Tape.
Technical Talk: October 17, 2011
Our Current Take:
The technical picture couldn't be cloudier at the present time. If one looks at the NASDAQ, you will have to admit that all systems are go. The index has broken out of its trading range, the breadth is excellent, and we've even got some "thrust" indicators flashing green. However, the story isn't the same on the rest of the major indices (DJIA, S&P 500, Smallcaps, Midcaps). In short, the recent rally up from the bottom on October has not pushed any of the other indices above the upper end of the range (although it is close on the DJIA and S&P) and, perhaps more importantly from a technical standpoint, the move has been accompanied by a really lousy volume relationship. So, the question of the day is: does volume matter? I may be proved wrong, but I think it does.
We would consider being short-term buyers at: A close over 1225 on the S&P 500
We would consider being short-term sellers: A close below 1195 on the S&P 500
Trend and Momentum Indicators:
Short-Term Trend: The short-term trend is clearly bullish right now. However, the bulls are likely being tested today. Thus, we will be watching the action closely today to see if the s.t. support can hold and also if the "it's all good" sentiment will remain intact.
Intermediate-Term Trend: The easiest way to identify the intermediate-term trend is to look at a closing weekly chart of the indices. The good news is that the indices are now above their 9-week ma's. The bad news is they remain below their 27-week ma's and that the ma's themselves are still moving down. As such, we'll call the trend neutral-to-moderately-positive.
Market Internals: Our TBC models are all in a bullish mode at the present time. This is a certainly a plus for the bull camp.
- TBC = Trend-and-Breadth-Confirm Model
Market Momentum: Our momentum models on the NASDAQ are awesome while over on the NYSE, well, not so much. Again, the volume MUST pick up if the bulls have a chance to break on through to the other side.
Support/Resistance Zones for S&P 500:
- Current Support: 1195
- Current Resistance: 1225
Early Warning Indicators:
Overbought/Oversold Condition: The S&P is now clearly overbought from short-term perspective and is neutral from an intermediate-term view. So, while this is not a bull-killer situation, traders are less likely to be buying into an overbought condition.
Investor Sentiment: Our sentiment models have pulled back a fair amount as the extreme pessimism seen in early-October has been replaced with an attitude of "it's all good, everything is fine." However, the models themselves remain moderately positive at this stage.
Below are snapshots of the two main charts we watch closely each day from a technical perspective. The indicators we display on the charts below include: 50 day weighted ma (purple), 18 day weithged ma (cyan), 10 day weighted ma offset by 2 days (orange), 4 day weighted ma offset 2 periods (dashed blue) and stochastic %K using 14 and %D.
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