Tuesday, January 10, 2012

Dax sentiment week 2

Dax hasn't been able to make a higher high after 3rd January. Weekly seasonality favors bears for the next 2 weeks. Short term view looks like drop under 6048 would be bearish. Until then we would more likely to see range trading between 6048-6169. There is also strong resistance at previous month highs between 6170-6193. Aggressive break up through that level, would lead the index to near 6400.

The volume dropped at it's lowest levels for ages. It seems that nobody wants to do a move until we get some good or bad news. Anyway, the prices can go up with low volume, but the the prices will definitely come down with high volume. Thus, the current situation needs cautiousness.

Again, the volume index based on volume calculations from individual stocks made lower close. According to my backtesting, this would give 95% probability that Dax index would make lower close during the next 5 days.

...on the other side, volume index 20 day lows have usually marked some kind of a short term market bottom. So, we will watch carefully if volume index will make another low today.

Volume accumulation / distribution is on the negative side.

Trin is on the negative side, which means that declining stocks have been getting more volume.

McClellan Summation Index hasn't yet turned. Usually the indicator is quite autoregressive and smooth. So until it turns down, we are waiting and not making any aggressive moves.

Overview: volume studies are more bearish than bullish. Seems like Dax is currently making a short term top which will take some time. After that it is possible that we will see a violent pullback below 6000 and towards 5500. Before breakdown below 6048, it would be wise to wait and stay in cash. If the index will advance over 6300, it would be good opportunity to go short.