Mon 2 Jun 2008
The S&P June 2 2008
Posted by ray under Written Plan
I wrote this piece last night but when I awoke this morning I found it has ‘disappeared’. The wonders of modern technology.
I just returned from Vietnam and found it an interesting experience. Last year, it had one of the most buoyant stock markets but at the time of my visit then, cracks were already apearing in the secular uptrend. This year Vietnam is experiencing a bear market. Indeed, when I looked at its chart, I saw the same pattern repeated across the region - the exceptions being Thailand, Taiwan and South Korea: most markets have completed a sharp first leg down; some have made a second leg rally while with the others, we are still awaiting that event.
In the US, I find the stock charts (DJIA, S$P etc) equivocal. Take the S&P, for example.
For the bear market to be confirmed, we need to see the market accept below 1257 in the S&P. However, we do have some benchmarks and clues to lean against before 1257.
- If we look at the up and down legs since the May 19 high (1440) and compare the price/volume relationships, we find that the range and volume of the up legs has shrunk - 30% and 5% respectively. The reduction of 5% (volume) is at best an indication, I would not like to make too much of it. The reduction in the range is worth noticing so I’d lean to the correction off the . For me, the next down leg will be important, if we see stronger volume come in, I’ll say we had a small leg 1 down and a leg 2 correction.
- The critical levels to watch will be 1373 and 1440. If the market accepts above 1440, I expect to see the Primary Sell Zone 1576 to 1557 tested. In addition a bull-bar close above 1424 will strongly suggest acceptance above 1440. If the market accepts below 1373, I expect a retest of 1270 to 1257.
(All figures basis cash S&P)
June 2nd, 2008 at 11:51 pm
As I was also invited to ATIC at HCMC, (second time round) I have learnt that foreign investors are always welcome in Vietnam.
However, I also learn that investors can repatriate only profits not the capital brought into the country.
This will not lure foreign investors to enter in droves unless they can repatriate their capital at some time.
Foreign investors must be free to repatriate both capital and profits within a specified time to make it attractive to invest in Vietnam.
June 3rd, 2008 at 5:59 am
Dear Ray,
It is very fascinating to read your comments on price and volume relations. I have a question on volumes. Which volume number should one use? Let me clarify. On the e-signal charts there is no volume for S&P cash. I do not know how some vendors calculate volumes for cash index charts and I am never too confident of the volume numbers that are given out by data vendors.
There are a few other options. Usually most Exchanges provide total number of shares traded on any given day (this data is available for Indian exchanges). Second way to do it is to sum up the number of shares traded for the stock that constitute an index. Say for e.g. S&P 500 we simply sum up the number of shares for each of the stock that is a part of the index. Or we can use the volumes in futures as a proxy for what happens in cash. But here too as the expiration nears the volumes will shrink and will not reflect true activity in the market.
In my opinion the total number of shares traded on the exchange is the best determinant of volumes for the cash index. If this is difficult to find then summing up total volume of all the stocks that constitute in index can be used as the next best thing. As far as volumes of commodity markets are concerned we can only use the futures volume for the given contract month.
What in your opinion is the best determinant of volumes for cash equity index? What would be best determinant of volumes for commodity futures. Lastly how much importance do you give to open interest ?
Regards,
Manish