Despite the positive trading in October the technical analysis does have some bearish indications. We may see that October's advance was greatly supported by the decline in the US Dollar (See the S&P 500 and US Dollar indexes chart below).
We still may see positive money flow on the hourly charts and other positive indicators such as MACD, Stochastics, RSI, and etc (see the chart below). However, at the same time we may see small increase in volatility, especially over the past week. The fact that we do not see decline in volatility is a bad sign for the longer term-bulls and may suggest that current up-swing could be easily reversed down. Yes, the volatility is lower than it was during the decline/crash in the beginning of August 2011, yet, it is still quite above the bullish volatility levels seen prior to the August 2011.
The other alerting sign is the strong bullish volume generated on October 27, 2011 - during the strong up-move (reaction on the decision to bail out Greece). It is difficult to assume that this volume was the result of the actions of the long-term bullish traders. On my opinion they would rather wait for the indexes (S&P 500, DJI, Russell 200 and Nasdaq 100) to break their highs. This bullish volume surge is more suitable for mid-and short-term traders. Keep in mind that volume is two side transaction and big volume surge during the price advance means that on October 3-26, 2011 the price was moving up because there were more buying orders of bullish traders and bearish traders were not rushing into the game. However, on October 26-27, 2011 big number of bearish traders came into the stock market and started to sell by satisfying orders of bullish traders buying in greed. There are high odds that such strong volume (strong action) may cause changes in the supply/demand balance. Now, the simple question is whether there are left enough bullish traders to support further up-move. If not, then we may see down-turn.
Chart: S&P 500 chart with elements of technical analysis
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