Analyzing the Stock Market with Volume, Distribution Data and Indicators

contributed by Michele Schneider,

The most significant thing that I can say in support of a further correction from last Friday’s trading is than the S&P 500 now has four Distribution days to its one Accumulation day. But that is just one indicator. As far as the actual daily chart, although we closed beneath the adaptive moving average, the adaptive moving average’s slope is neutral which means that movements above and beyond as long as the overall phase is intact can be perceived as nothing more than noise. QQQQ did not have a a Distribution day last Friday and although it closed beneath the adaptive moving average it did so just barely. A couple of well respected analysts that I see on twitter mentioned that although the QQQQ and the SPY did not have an inside day, they did have a candle body that was inside the day priors candle. So we now know a couple of things. One is that the QQQQ and SPY could not fill the gap that was left from the day it gapped down on February 22. Slopes of the adaptive moving averages are neutral. The phase is still convincingly bullish. The volume gives us a warning in the S&P 500 not so in NASDAQ. Looking at IWM, there is no significant warning in volume, it held the adaptive moving average, and likewise, has not filled the gap that was left from February 22. The overall formation on the daily chart is interesting because it did have a true inside day not just the candle inside day and it looks like consolidation which at this point, indicates more of a move up rather than down. The best I can say about last week is that we did close better than where we began in IWM, worse in the S&P 500, better in NASDAQ.

FXI confirmed a bullish phase and so we went long in anticipation of it following through. Our risk is a close beneath the 50 day moving average now at 42.87.
SMH closed slightly down on the day but overall pattern still looks very positive.
IBB closed basically unchanged also looking positive especially if it can get through 96.41.
XLE same as the other two. OIH also looking like consolidation.
So where is the weakness coming from? XRT was not able to close back above the adaptive moving average but doesn’t exactly look weak either. Will watch for a close above 49.30 on Monday which should give us at least some idea about the retail sector’s next direction.
IYR also closed slightly below the adaptive moving average. If that gets through Friday’s hi 59.40 then I would anticipate a further move up in the real estate sector. However that candle formation is a bit more ominous looking so we should also be prepared to watch it for a breakdown beneath Friday’s low  58.47 which should then bring it back down to test the 50 day moving average of 57.50.
FAS which looked like it was done for with a possible break of the 50 day moving average, actually wound up rallying at the end of the day closing slightly above the 50 day moving average. The financial sector certainly looks like the weakest of the bunch, at the same time the fact that is holding now on that 50 day moving average with any strength on Monday, a move back above 32 and it could get interesting once again.

The other weak sector was IYT transportation. That is beneath the 50 day moving average. But it has been beneath the 50 day moving average now for a couple of weeks and the slope on the 50 is neutral. Would certainly keep an eye on that for further weakness, especially if it breaks down beneath the last swing low at 89.30; but it is also possible that if it can get through 92.80, it will try to run back up to fill the gap that was left above at 89.

Fact: Phase Bullish Fact: Volume is a concern in S and P 500 Fact: Certain Sectors Very Strong Fact: Other Sectors Not so Much But still Bullish teetering on Warning Fact: Dollar is Weak, Inflation a Concern and Commodities are Up. Fact: The Economy is Recovering Fact: There are still deep concerns about Deficits, Unemployment, Housing Recovery.

If you put all the facts together it smacks more of further upside than downside. However, the one test is how many volatile swings can investors/traders tolerate? This is why I am constantly working on perfecting all of the trading strategies-from the market overview, to the sectors and groups to the individual instrument’s weekly and daily setups to the finite intraday signals-pivots, opening ranges-reversal, breakdowns and breakouts, plus timeframes and risk tolerance. This is the greatest time to learn and grow as a trader. When it’s easy-everyone looks like a genius.

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