Chris Lau - Seeking Alpha

Wednesday, November 11, 2009

If It Looks like a Bear, Smells like a Bear, and Acts like a Bear

...It is not a bear.

Before reading on, know that any pattern may exist if you look long enough to find one.

In the chart of the S&P 500 from mid-June 2009 to present, above (click for full image), I labeled the uptrend days (D,E,F) against the sell-off days (A,B,C).

Uptrend Days (%, rounded)
D - +8.0%
E +8.7%
F + 3.4%

Downtrend Days (%, rounded)
A – -2.0%
B - -3.8%
C - -6.4%

The pattern that emerges is that on the downtrend days, volume is higher than average, and on the uptrend days, volume is on the decline. With exception, only the rally in D had rising volume, and was followed by the market still rising in E's rally.

With the trading activity this month, volume decline continues to be even more pronounced with each passing day.

The PPO (percentage price oscillator) compares two different moving averages. Its 3 peaks against the absolute price changes were also on the decline, a negative short-term sign.

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