Sunday, August 14, 2011

Weekly Market Commentary: Volume Surge

The previous week saw long standing trends from March 2009 broken for lead averages. This week saw selling volume rise sharply, although in itself it doesn't necessarily mean a bottom is in place. Market Breadth was the real mover&shaker on the week.

The last time the Nasdaq saw selling volume comparable to last week, was in October 2008. However, back then the index didn't produce a swing low until November and of course, the market bottom until March 2009. Adding to the likelihood for further losses over the coming weeks is it's non-oversold technical status.

Nasdaq

via StockCharts.com

The Nasdaq Bullish Percents suffered a significant gap down - the biggest for the past 5 years+. It's in deep oversold territory at 26%, although it did fall as low as 6% in 2008.

($BPCOMPQ)
via StockCharts.com

Likewise, the Percentage of Nasdaq Stocks above the 50-day MA dropped as low as 5% before recovering to11%. It's low was 3% in 2008. Again, the actual low in the market didn't occur until the following year when the breadth indicator had generated a substantial bullish divergence.

($NAA50R)
via StockCharts.com

Small Caps are caught in a no-mans land between support and resistance. To compound such matters, it's not oversold technically. So while it finished the week on a dragonfly doji, it's likely to see a dip into the long tail in the coming week.

($RUT)
via StockCharts.com

While Large Caps saw a surge in selling volume, significantly higher than relative volume gains for Tech or Small Caps. But like Tech and Small Caps, technically it's not oversold. No flight of safety after weeks of complacent trading. But given its broader underperformance relative to Tech and Small Caps it might yet turn into a market leader.

($SPX)
via StockCharts.com

So while markets did well to recover Thursday and Friday it still 'feels' early for a bottom. The good news is Market Breadth is at extremely oversold levels. This favors the development of bullish divergences to firm reaction lows, so watch for new market lows on increasing breadth strength. The time to become more aggressive in the market will become clearer on the daily charts, but weekly charts still favour caution.

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Dr. Declan Fallon is the Senior Market Technician and Community Director for Zignals.com. I offer a range of stock trading strategies for global markets which can be Previewed for Free with delayed trade signals. You can also view the top-10 best trading strategies for the US, UK, Europe and Rest-of-the-World in the Zignals Trading Strategy Leaderboard. The Leaderboard also supports advanced search capability so you can tailor your strategies to suit your individual requirements.

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