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Market Stage
(8/27/2010)

Despite yesterday's bearish indication, the indexes moved higher today following Ben Bernanke's speech.

60-day charts with a 20-period SBV are now showing advancing SBV oscillator values with the following SBV values registered at day's end: Plus 5% on the Nasdaq 100; plus 15% on the S&P 500; plus 10% on the Dow. Advancing SBV readings are bullish and suggest the possibility of an up-move in the market. We will continue to monitor this chart setting in order to determine at which point SBV oscillator readings start to decline; this might then suggest better odds for a coming move to the downside.

1.5-year charts with a 10-period SBV are showing flat SBV oscillator readings. This suggests we might see a change in market sentiment. Because SBV readings are however still at low, negative levels, this chart setting continues to indicate that bears are dominating the market. The accumulation of bearish volume seen on this chart setting has become quite pronounced suggesting an oversold market. At the same time, we have still not seen any strong bearish volume surges on this chart which might indicate panic selling and suggest the end of the current correction.

Market Status
(8/27/2010)

Market Performance:
�
Last Change Volume A/D Ratio
S&P 500 1,064.61
17.16 (1.64%)
3,549,812 14.50
NASDAQ 100 1,791.64
22.62 (1.28%)
854,417 8.09
DJI 10,151.18
164.08 (1.64%)
797,021 9.00

We saw a wide-ranging, volatile session today. Initially, recent bearishness spilled over to this morning's action on the major indexes, driving them sharply lower to re-test Wednesday's swing lows (the NASDAQ 100 even pushed well beyond its Wednesday low). Shorty after 10 o'clock, the market however put in a convincing intraday reversal, ultimately closing the session with solid gains (see table above).

NASDAQ 100 - 8/27/2010. 1-day Intraday, Modulated Volume.

Volume Analysis:
The earlier part of today's trading brought more of the same, namely a continuation of recent bearish action, as the Nasdaq 100 spiked to a low below its recent swing low established on Wednesday. A one-day chart shows that this sharp, early decline was associated with a strong buildup of bearish volume (appearing in red on the SBV oscillator pane). A strong, sudden buildup of bearish volume that takes place as the market pushes lower is often a sign that bearish momentum can no longer be sustained, and this was clearly the case today, as the index quickly reversed course following the peaking of this bearish volume spike shortly after 10 o'clock. With bearish momentum exhausted, the bulls managed to drive the market steadily higher for the remainder of the session, achieving a bullish close with a gain of roughly 1.3%. Note that the market very quickly generated a fair output of bullish volume (in green on the SBV oscillator pane) after the index reversed off the bottom in the morning. Because the spikes occurred so close together, a five-day chart of the index thus shows a single, strong volume surge consisting of a mix of bearish and of bullish volume.

Short Term (lasts a few hours to a few days): Today's market action confirmed our short-term outlook from Thursday's report, where we had indicated that the market could trade 'slightly bearish initially' but where we also suggested '... things could soon start to improve for the bulls, particularly if an intraday dip generates more bearish volume'. In today's volatile session, an initial dip brought a re-test of Wednesday's swing lows which gave way to a strong intraday upswing that led to positive closes for the broad market.

Notable about today's strong intraday upside reversal was the fact that the rising market almost immediately generated a strong output of bullish volume (as discussed in the Volume Analysis section above for the Nasdaq 100). We believe that this could suggest that over the short-term, further upside potential might be fairly limited. At the same time, we see a good chance the market will remain modestly buoyant over the short-term, with the bulls buying any intraday dips. All in all, we are thus slightly bullish.

Analyst's Daily Tip:

Critical Levels:
In order to establish the optimal critical levels for the SBV indicator, a trader should consider the current market situation and review a chart history of prior volume surges including their magnitude (i.e., the level the SBV indicator reached). Furthermore, it is important to look at more than one chart and to use multiple timeframes. For instance, while a volume surge may look imposing and appear to be critical on a 2-hour or a 1-day chart, the very same surge may not look nearly as significant on a 5-day chart. A prominent surge appearing on a 1-day chart could well affect index levels and bring about a one to five point reversal. In contrast, a prominent volume surge on a 5-day chart may prompt a reversal of 5 to 10 points.

Magnitude of a volume moving average (VMA) surge
When analyzing a VMA surge, observe not only its height, but also its width (duration). Place additional emphasis on surges that are wider than normal. For instance a wide VMA surge as price is moving down indicates prolonged buying interest. Likewise, the same principle applies (in reverse) to the analysis of VMA surges s the price is moving up.

Financial Press Overview:
As discussed here yesterday, all eyes were on Federal Reserve Chairman Ben Bernanke today as he spoke at the Fed's annual conference in Jackson Hole, Wyo. Bernanke promised today the Fed was ready to step in should the US economy show additional signs of weakness. Following his comments, the broad market gained ground sharply and put in a solid intraday reversal. While Bernanke confirmed fears that the US economic recovery was indeed in a slowing phase, he also remained confident that economic growth would be seen in 2011. If required, the Fed is willing to purchase further debt securities in order to ensure that interest rates can be kept low.

Unity amongst Fed members in making their economic decisions was however not unanimous - some members dissented. For instance, the Federal Reserve Bank of Kansas City warned that continuing to keep interest rates at record lows amounts to a 'dangerous gamble' and another Fed governor voiced concern that investors could be alarmed if the Fed eyes further stimulus programs.

Of encouragement was the economic news that a downward revision of economic growth in Q2 did not come in as dire as initially feared. Specifically, the Commerce Department reported today that the US GDP increased by 1.6% between April and June (earlier estimate: a growth rate of 2.4%; consensus estimate: growth of 1.4%).

The University of Michigan released results from its final Consumer Sentiment Survey for August. Consumer confidence saw a slight downward revision (from a reading of 69.6 to 68.9) and came in modestly below expectations for a reading of 70.0.