Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
U.S. Dollar: When Almost Everyone Is Bearish... - 1st Jul 20
Politicians Prepare New Money Drops as US Dollar Weakens - 1st Jul 20
Gold Stocks Still Undervalued - 1st Jul 20
High Premiums in Physical Gold Market: Scam or Supply Crisis? - 1st Jul 20
US Stock Markets Enter Parabolic Price Move - 1st Jul 20
In The Year 2025 If Fiat Currency Can Survive - 30th Jun 20
Gold Likes the IMF Predicting a Deeper Recession - 30th Jun 20
Silver Is Still Cheap For Now - 30th Jun 20
More Stock Market Selling Ahead - 30th Jun 20
Trending Ecommerce Sites in 2020 - 30th Jun 20
Stock Market S&P 500 Approaching the Precipice - 29th Jun 20
APPLE Tech Stock for Investing to Profit from the Machine Learning Mega trend - 29th Jun 20
Student / Gamer Custom System Build June 2020 Proving Impossible - Overclockers UK - 29th Jun 20
US Dollar with Ney and Gann Angles - 29th Jun 20
Europe's Banking Sector: When (and Why) the Rout Really Began - 29th Jun 20
Will People Accept Rampant Inflation? Hell, No! - 29th Jun 20
Gold & Silver Begin The Move To New All-Time Highs - 29th Jun 20
US Stock Market Enters Parabolic Price Move – Be Prepared - 29th Jun 20
Meet BlackRock, the New Great Vampire Squid - 28th Jun 20
Stock Market S&P 500 Approaching a Defining Moment - 28th Jun 20
U.S. Long Bond: Let's Review the "Upward Point of Exhaustion" - 27th Jun 20
Gold, Copper and Silver are Must-own Metals - 27th Jun 20
Why People Have Always Held Gold - 27th Jun 20
Crude Oil Price Meets Key Resistance - 27th Jun 20
INTEL x86 Chip Giant Stock Targets Artificial Intelligence and Quantum Computing for 2020's Growth - 25th Jun 20
Gold’s Long-term Turning Point is Here - 25th Jun 20
Hainan’s ASEAN Future and Dark Clouds Over Hong Kong - 25th Jun 20
Silver Price Trend Analysis - 24th Jun 20
A Stealth Stocks Double Dip or Bear Market Has Started - 24th Jun 20
Trillion-dollar US infrastructure plan will draw in plenty of metal - 24th Jun 20
WARNING: The U.S. Banking System ISN’T as Strong as Advertised - 24th Jun 20
All That Glitters When the World Jitters is Probably Gold - 24th Jun 20
Making Sense of Crude Oil Price Narrow Trading Range - 23rd Jun 20
Elon Musk Mocks Nikola Motors as “Dumb.” Is He Right? - 23rd Jun 20
MICROSOFT Transforming from PC Software to Cloud Services AI, Deep Learning Giant - 23rd Jun 20
Stock Market Decline Resumes - 22nd Jun 20
Excellent Silver Seasonal Buying Opportunity Lies Directly Ahead - 22nd Jun 20
Where is the US Dollar trend headed ? - 22nd Jun 20
Most Shoppers have Stopped Following Supermarket Arrows, is Coughing the New Racism? - 22nd Jun 20

Market Oracle FREE Newsletter

AI Stocks 2020-2035 15 Year Trend Forecast

Stock Market Oversold But Threatening Critical Support Level

Stock-Markets / US Stock Markets Jul 03, 2008 - 03:56 AM GMT

By: Hans_Wagner

Stock-Markets

Best Financial Markets Analysis ArticleOriginally written 30th June 2008 - Following the market trend is a proven way for investors to beat the market and grow your stock portfolio. Basic technical analysis provides the tools to identify and follow the trends of the market as determined by the S&P 500.

It is best to begin with the big picture in mind and then work our way down to weekly and then daily views of the charts. You will notice that the chart and the value of the indicators change as we move from a monthly to a weekly and then a daily chart. This is a normal part of the technical analysis.


Let's start with the long term view of the S&P 500. The Relative Strength Index (RSI) is a good indicator of the cyclical bull and bear markets. In addition, the 78-week Exponential Moving Average (EMA) acts as support in a bull market and resistance in a bear market.

In January, we fell into a bear market as the RSI dropped below 50. The index fell through the rising trend line and the 78-week exponential moving average and MACD crossed below zero. This is consistent with the fundamentals of a weakening economy, and a recession. It is best to remain nimble during times like this.

The first support level looks to be just above the 1200 level. The 78-week exponential moving average remains as resistance.

The weekly S&P 500 below was in a bullish ascending triangle that broke to the down side. The recent move up turned back down at the 50-week moving average.

Support is now at the 1220 area. RSI below 50 indicates a downtrend. MACD fell through the 9-week moving average, a sell sign. Slow Stochastic is trending down.

As predicted, the market tested the 50-week moving average and then turned back down. We may see an oversold bounce here, but the overall trend is down.

The daily S&P 500 chart below shows resistance at the 200-day moving average and the 1,400 level. As expected, these levels held and the market turned down from there. There is support at the prior low. We are likely to see an oversold rebound here before the market turns back down again.

RSI is below 50 indicating a downtrend. The MACD continues to trend down. When it turns up through the 9-day moving average, it will be a buy sign. The Slow Stochastic signaled a move down when it fell through 80 and is now below 20. When the Slow Stochastic turns up through 20 it is often an early sign of a move up.

In bear markets, it is best to be nimble and/or use risk protection such as trailing stops, protective put options and even covered call options. Of course, you can go short or use any of the short Exchange Traded Funds (ETFs).

Given this perspective, it is important to have your portfolio positioned for the down turn. I expect the market to rebound from this support level as it is currently over sold. However, it is most likely to turn back down again. Any rebounds are good places to add more down side protection by using short ETFs, put options or covered calls. Of course, you can also sell long positions that can be bought back after they have fallen further.

While it is tempting to buy when the market falls, it is a better strategy to be sure the market has formed a base. Most likely the prices of many companies will be even lower. That does not mean you cannot buy high quality companies that are in sectors that are trending up. Just keep in mind, Warren Buffett's first rule of investing is to not loose money.

To learn more about analyzing market trends and technical analysis I suggest reading:
Ahead of the Curve: A Commonsense Guide to Forecasting Business and Market Cycles 4 by Joe Ellis is an excellent book on how to predict macro moves of the market.

Encyclopedia of Chart Patterns (Wiley Trading) 5 by Thomas N. Bulkowski is the only definitive study of chart patterns that includes statistical analysis of the success and failure of over 50 chart patterns. While expensive, it is worth it.

By Hans Wagner
tradingonlinemarkets.com

My Name is Hans Wagner and as a long time investor, I was fortunate to retire at 55. I believe you can employ simple investment principles to find and evaluate companies before committing one's hard earned money. Recently, after my children and their friends graduated from college, I found my self helping them to learn about the stock market and investing in stocks. As a result I created a website that provides a growing set of information on many investing topics along with sample portfolios that consistently beat the market at http://www.tradingonlinemarkets.com/

Hans Wagner Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules