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Market Stage
(11/14/2008) Despite yesterday's positive outlook we saw a highly volatile session with strong up and down movements. Today session however ended very negatively.
A dissection of the medium term 60-day SBV(20 period) charts show the SBV oscillators decline. By the end of the session the SBV values read: minus 21% on the NASDAQ 100, minus 22% on the S&P 500 and minus 17% on the DJI. As The SBVs decline so increases the possibility of further downward trading. On the other hand we have big bearish volume accumulation and absence of bullish volume which points to the possibility of the recovery. Overall we would assume that this chart would favor up-move slightly higher over a slide down, however, it would be nice to see our SBV oscillator moving up as confirmation of that.
As our medium term charts have continued to move between positive and negative scenarios, the longer term 1.5-year SBV(10 period) charts have started to show the oscillators declining. The huge bearish volume surges and absence of bullish volume point to the heavily oversold markets, however declining SBV reveals that the market is still weak and sentiment is still Bearish. Overall both views confirm that we are at a transition point and further clues will be needed to see when the market's direction will change.
As we mentioned several times over the last month, in such highly volatile market, it is recommended that we use a lower time-frame chart in order to react faster on trend reversals.
Market Status
(11/14/2008)
Market Performance:
| | Last | Change | Volume | | S&P 500 | 873.29 |  | 38.00 (4.17%) |
| 4,672,124 k | | NASDAQ 100 | 1,179.63 | | | 61.30 (4.94%) |
| 1,080,513 k | | DJI | 8,497.31 | | | 337.94 (3.82%) |
| 1,330,556 k |
Another November day ended down in the midst of weaker macro economic numbers. News from individual companies were similarly bad. The markets responded and the NASDAQ 100 led the way lower. It ended the session with a loss of 4.94%, the S&P 500 was lower 4.17% while the Dow declined 3.82%. Today's session put an exclamation mark on a slightly negative week. The final tally shows the NASDAQ 100 down 7.23%, the S&P 500 is lower by 6.17%, and the Dow is in the red by 4.99%.
A volume of 4,672 million shares traded today on the S&P 500, less than the daily average volume of the past 3 months by 6%. The current trend has lower volume numbers on declines than usual.
NASDAQ 100 - 11/14/2008.
1-day Intraday, Modulated Volume.
Volume Analysis:
9:30 - 12:30 Today's open was a familiar gap lower than yesterday's start. During the past month lower gaps have been typical. The early morning trading was a slow and methodical decline.
In the span of roughly 3 hours the NASDAQ 100 lost close to three percent. Volume activity during the decline was very minimal and hence did not give a clear direction. In cases like this it is useful to look at the volume produced of the previous session. Thursday's session produced an abundance of bullish volume and caused the index to be slightly oversold therefore the probability of a small retracement or decline was very likely and played out in this time period.
12:30 - 15:05 Following the previous time period, trading in the afternoon was similar. All the declines of the early morning were made up as the NASDAQ 100 backtracked into near positive territory.
By 14:45, the index moved beyond today's opening (an intra-day high) in right into yesterday's close. The interesting aspect of this move higher was the generation of bullish volume. The view from the 5 day chart shows the surge of bullish volume was very intense but short. The interpretation is that at that point many sellers came into and sold the market lower.
15:05 - 16:00 While the formation of intense bullish volume at 15:05 was in not a positive occurrence for the index. The decline that we saw in the end part of today session in other words our response to the volume generation was very dramatic. It typically requires more than one surge of volume in order to turn a market. From a near neutral position, the index has stumbled lower and sustained a nearly 5 percent point loss. Weakness and volatility are still present in the market.Short Term (lasts a few hours to a few days): To reiterate from several past short term outlooks, we are in a situation with two main facts: excessive bearish volume accumulation and a downward trending market. The move higher in yesterday's session was followed by a retracement in today's. Up into an hour before closing, yesterday's positive move seemed as though it could continue however bearish volume generation increased and declines started.
Today's decline while negative relative to Thursday's move higher does not automatically signal weakness in the near term. The markets are near lows set in mid October. A very likely scenario is for the market to start trending higher and lower in other words chopping around these levels. The likelihood of a strong and sustained move in either direction is low compared to small trends in either direction. There's a slight chance of further positive endings as we are closer to the low end of the trading range.
One thing we that will point out is the lack of bearish volume during declines, usually a strong move lower will generate large amounts of bearish volume but the volume numbers today are lower than the 3 month average and show that buyers are not stepping into the market. This is not a positive sign.
Analyst's Daily Tip:
Volume surges
Volume surges are evaluated according to their magnitude and duration. It is vital to appraise each particular volume surge before attempting to predict how it might impact future market direction. We categorize volume surges as short-, mid-, or long-term. We also classify intraday surges.
Critical Levels:
In order to establish the optimal critical levels for the SBV indicator, specifically when to enter a position, where to set profit targets, where to place stop-losses, traders should consider the current market situation. This also includes reviewing historical charts to study volume surges and their magnitude (i.e., the level the SBV indicator reached).
Financial Press Overview:
Retail sales figures released by the Commerce Dept shows sales decreasing by 2.8% last month the drop was the largest on record and surpasses the 2.65 percentage drop in November 2001. Declines in the job market have started to have a ripple effect on household spending.
A whole host of U.S. retailers including Kohl's, Nordstrom, JCPenney and Abercrombie & Fitch declined as they issued downgraded guidances for the fourth quarter.
With a batch of market pundits parading on air with the message of 'the market is cheap and it is time to start buying', Invesco investment strategist Diane Garnick has a different perspective. During her conversation with Aaron Task of Yahoo!'s tech ticker she notes the others are using estimates of 2009 earnings made before the current economic downturn was factored in. Therefore it is her contention that as earning estimates are downgraded, the valuations of stocks will also decline. She also believes that there is a real probability that the markets will go through a period a relatively low to no growth.
The nation's largest automaker, GM, has 16.2 billion in cash. The company needs a minimum of 11 to 14 billion for day to day operations. By the company's estimations, its burn rate will have the company bankrupt before the incoming administration can rescue it. As dark clouds continue to surround GM, it is thought that creditors may seize assets or even forced the company into bankruptcy. In that nightmare scenario, the company condition would scare away customers and cause further damage. Billionaire investor Jim Rogers has commented that GM stock is shortable at any price because it is such a bad company.
Key economic data for the week starting November 17th, 2008. Numbers shown are consensus estimates (market anticipates this value) and prior value.| Tuesday: |  | 08:30 Core PPI Oct 0.2% 0.4% 08:30 PPI Oct -1.5% -0.4% 09:00 Net Foreign Purchases Sep NA $14.0B |
| Wednesday: | | 08:30 Building Permits Oct 770K 805K 08:30 Core CPI Oct 0.2% 0.1% 08:30 CPI Oct -0.8% 0.0% 08:30 Housing Starts Oct 780K 817K 14:00 FOMC Minutes Oct 29 |
| Thursday: | | 08:30 Initial Claims 11/15 NA NA 10:00 Leading Indicators Oct -0.6% 0.3% 10:00 Philadelphia Fed Nov -30.0 -37.5 |
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