Crazy week - drop down - strong recovery on Thursday - even stronger drop on Friday. I have mentioned in my last "Technical Analysis" report about oversold market and we saw the decline. Yet, the Friday drop was somewhat unexpected. Majority of the technical indicators were bullish after the market close on Thursday. The Friday's crash proved one more time the importance of the intraday charts monitoring. Even if the market makes a strong move against the position, those of the traders who watch the charts on intraday basis have time to close the position in time with acceptable losses and even in some cases with small profit.
The Friday drop was very scary for many traders - I see very high volume on that day. It looks like many traders were dumping their positions in the fear of the recession. I think the memory is still fresh about October 2007 - February 2008 volatile stock market.
Even the Nasdaq 100 and the S&P 500 indexes still close to its high levels (the Nasdaq 100 is only about 3% and the S&P 500 is about 5% below it's highest levels), even the S&P 500 and the Nasdaq 100 is still far away from the January 23rd and March 17th lows, the Dow Jones Industrials scares everyone. Over the last couple of weeks the DJI index has dropped for about 7% and it's only about 4% to the January and March resistance levels.
I do not think we have right to say the the stock market is in the recession based on the Friday crash and strong decline in the Dow sector. If we take a look at other US indexes we will see that the Dow 30 is the only index that substantially moved down:
Nasdaq 100, Nasdaq Composite, Amex Composite, Dow Jones Transport, Dow Jones Utilities, S&P 400, S&P 600 and the Russell 2000 are still at the top and very close to the May highs; S&P 500, NYSE Composite, S&P 100, Russell 1000 and Russell 3000 have dropped, yet still far away from the January resistance level.
I think it's a little bit premature to create panic based on the Friday's drop. We had strong two months recovery (since the middle of March to the middle of May) and it's in the nature of the stock market to release some oversold pressure.
By looking at my technical indicators I see the growing oversold pressure which may push the market up. I see nice volume surges during the market down move on May 21-22, on June 3-4 and on June 6. Especially, I see strong oversold levels on the DJI. Yet, I think the market may continue to move down, at least to the point when I see the negative MVO is back to zero line and when the McClellan oscillator becomes red(negative) and starts tomove up. The Nasdaq 100 is not as oversold as the DJI and this is one of the reasons why I think we may face further drop.