Wednesday, December 3, 2008

Crazy Market; Dec. 3, 2009

Well the market continues to be extremely volatile and choppy. The choppiness and inability to go above that key level in the Nasdaq 100 as mentioned in prior posts tells me this rally phase is just a correction. However I'm not certain as to what exactly is going on, I only know that the larger trend is down so rallies should be shorted and declines should be used as an opportunity to take profits.

Above I placed a 15min chart of the S&P with the NYSE advancers/decliners indicator at the bottom (purple line). The higher the NYSE indicator, the more advancers there are vs. decliners. Many times we can identify the strength of a move and/or when it's ending by this indicator because it shows us the demand for stocks. So let's look at the chart and go over it:

Notices that I circled the highs on the NYSE indicator and the corresponding highs on the price chart above it. The first set we see "Highest High" on both price and the NYSE. That level marked the strongest NYSE breadth during this period. Then notice the next circle it's "Lower" while price was "Higher" in red. So price made a new significant high, yet NYSE breadth actually contracted during this tiem, telling us that-that big rally was weakening. Shortly after this occured, we had a 9% sell off in one day. So it proved to be a good indicator of a weakening rally.

Now let's look at Tuesday and Wednessday's data. We see the "Highest Highs" again in black. Then notice that all of the following "Higher" highs in price are accompanied by "Lower" lows in the NYSE breadth indicator below. So the market is rallying but breadth is contracting. It seems that buying demaind is severely waning and this rally is weakening severely. Last time this happened we saw a 9% sell off in a day. As long as this trend continues, this market is about to sell off.

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