Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Gold Price Trend Validation - 22nd Aug 19
Economist Lays Out the Next Step to Wonderland for the Fed - 22nd Aug 19
GCSE Exam Results Day Shock! How to Get 9 A*'s Grade 9's in England and Maths - 22nd Aug 19
KEY WEEK FOR US MARKETS, GOLD, AND OIL - Audio Analysis - 22nd Aug 19
USD/JPY, USD/CHF, GBP/USD Currency Pairs to Watch Prior to FOMC Minutes and Jackson Hole - 22nd Aug 19
Fed Too Late To Prevent US Real Estate Market Crash? - 22nd Aug 19
Retail Sector Isn’t Dead. It’s Growing and Pays 6%+ Dividends - 22nd Aug 19
FREE Access EWI's Financial Market Forecasting Service - 22nd Aug 19
Benefits of Acrobits Softphone - 22nd Aug 19
How to Protect Your Site from Bots & Spam? - 21st Aug 19
Fed Too Late To Prevent A US Housing Market Crash? - 21st Aug 19
Gold and the Cracks in the U.S., Japan and Germany’s Economic Data - 21st Aug 19
The Gold Rush of 2019 - 21st Aug 19
How to Play Interest Rates in US Real Estate - 21st Aug 19
Stocks Likely to Breakout Instead of Gold - 21st Aug 19
Top 6 Tips to Attract Followers On SoundCloud - 21st Aug 19
WAYS TO SECURE YOUR FINANCIAL FUTURE - 21st Aug 19
Holiday Nightmares - Your Caravan is Missing! - 21st Aug 19
UK House Building and House Prices Trend Forecast - 20th Aug 19
The Next Stock Market Breakdown And The Setup - 20th Aug 19
5 Ways to Save by Using a Mortgage Broker - 20th Aug 19
Is This Time Different? Predictive Power of the Yield Curve and Gold - 19th Aug 19
New Dawn for the iGaming Industry in the United States - 19th Aug 19
Gold Set to Correct but Internals Remain Bullish - 19th Aug 19
Stock Market Correction Continues - 19th Aug 19
The Number One Gold Stock Of 2019 - 19th Aug 19
The State of the Financial Union - 18th Aug 19
The Nuts and Bolts: Yield Inversion Says Recession is Coming But it May take 24 months - 18th Aug 19
Markets August 19 Turn Date is Tomorrow – Are You Ready? - 18th Aug 19
JOHNSON AND JOHNSON - JNJ for Life Extension Pharma Stocks Investing - 17th Aug 19
Negative Bond Market Yields Tell A Story Of Shifting Economic Stock Market Leadership - 17th Aug 19
Is Stock Market About to Crash? Three Charts That Suggest It’s Possible - 17th Aug 19
It’s Time For Colombia To Dump The Peso - 17th Aug 19
Gold & Silver Stand Strong amid Stock Volatility & Falling Rates - 16th Aug 19
Gold Mining Stocks Q2’19 Fundamentals - 16th Aug 19
Silver, Transports, and Dow Jones Index At Targets – What Direct Next? - 16th Aug 19
When the US Bond Market Bubble Blows Up! - 16th Aug 19
Dark days are closing in on Apple - 16th Aug 19
Precious Metals Gone Wild! Reaching Initial Targets – Now What’s Next - 16th Aug 19
US Government Is Beholden To The Fed; And Vice-Versa - 15th Aug 19
GBP vs USD Forex Pair Swings Into Focus Amid Brexit Chaos - 15th Aug 19
US Negative Interest Rates Go Mainstream - With Some Glaring Omissions - 15th Aug 19
GOLD BULL RUN TREND ANALYSIS - 15th Aug 19
US Stock Market Could Fall 12% to 25% - 15th Aug 19
A Level Exam Results School Live Reaction Shock 2019! - 15th Aug 19
It's Time to Get Serious about Silver - 15th Aug 19
The EagleFX Beginners Guide – Financial Markets - 15th Aug 19

Market Oracle FREE Newsletter

The No 1 Gold Stock for 2019

Stock Market Trends February 2009: Bear Market Rally

Stock-Markets / Stocks Bear Market Feb 04, 2009 - 02:50 PM GMT

By: Hans_Wagner

Stock-Markets

Diamond Rated - Best Financial Markets Analysis ArticleThis is a free monthly newsletter on stock market trends to help you to learn to invest. Following the trend is a proven way to beat the market and grow your stock portfolio. Basic technical analysis provides the tools to identify and follow the market trends using the S&P 500.

To identify the stock market trend, 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.


Starting with the long-term view of the S&P 500, you can see peak resistance was reached at the same level at the end of the bull market of 2000 and the bull market of 2008. The S&P 500 has fallen to the lows of 2002 - 2003, the last bear market. This does not mean the current bear market is over. Rather we might see a rally for several weeks to months before retesting of the lows of this bear market.

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 2008, 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. In a bear market, the general trend is down. Investors should have down side protection in place and use the short Exchange Traded Funds (ETFs) to capture additional profit.

Recently, the MACD is turning up, giving a buy sign. This means we have reached an interim bottom, not an overall market bottom. The Slow Stochastic is poised to rise up through 20, another buy sign when it does.

The 78-week exponential moving average and the bear market down trend remain as key resistance for the bear market.

The three-year weekly S&P 500 chart shows more closely the transition from a bull to a bear market. So far, the descending trend line and the 50-week moving average are the primary resistance for this bear market.

Most recently, the index formed a descending triangle pattern, a bearish formation. If the index breaks down through support, the market is likely to fall further. On the other hand, if it breaks out through the descending trend line, we could see up trend in the stock market.

RSI below 50 indicates a downtrend. MACD turned up through the nine-week moving average, a buy sign. Slow Stochastic rose through 20, another buy sign, though it is turning down, a sign of weakness.

Long term the trend in the stock market is still down, although we are likely to see consolidation at this level and possibly a rally up to 1,000 and maybe even resistance at the 1200 area.

In the daily S&P 500 chart below, a descending channel has formed.  The S&P 500 is trying to break up through the upper descending trend line and the 50-day moving average. To break through, we need to see above average volume, or the market will continue to either fall, possibly testing the lows reached in November 2008.

RSI is below 50 indicating a downtrend. Earlier the MACD rose up through the nine-day moving average, a buy sign. It encountered resistance at the zero level and turned down, a sign of weakness. The Slow Stochastic signaled a buy when it moved up through 20. However, the Slow Stochastic turned down as it rose through 50, a sign of weakness.  The indicators are telling us the market is at a decision point, either continuing to rally if it can move up or pull back and test prior lows.

If you are long, you should considering selling at least half of your position and/or adding down side risk protection on any move down.

If the rally continues, then significant resistance will be encountered at the 200 simple and exponential moving averages, and the descending trend line.

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. On a sign the market is unable to penetrate resistance, you might consider using the short and ultra short Exchange Traded Funds (ETFs).

Given this perspective, it is important to have your portfolio positioned for a short-term rally and a long-term bear market. This means investors should assess their long positions to reduce risk and be ready for a pull back to prior lows. When the market falls during a bear market, you should either be in cash or be short. The short and ultra short ETFs are good ways to short the market without having to depend on selecting specific stocks.

While it is tempting to buy when the market falls, it is a better strategy to be sure the stock market trend is in your favor. Most likely the prices of many companies will be even lower. Following the stock market trend works. That doesn't 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. Patience is key when markets are moving down.

To learn to invest by analyzing market trends using technical analysis I suggest reading: Technical Analysis: The Complete Resource for Financial Market Technicians by Charles D. Kirkpatrick and Julie R. Dahlquist. Superb job explaining technical analysis for those new to technical analysis, as well experienced practitioners

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/

Copyright © 2009 Hans Wagner

Hans Wagner Archive

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


Comments

johnlbe9@bigpond.net.au
05 Feb 09, 05:55
S&P Price Pattern

Your last chart from November on is not a descending triangle but if correctly drawn is a SYMMETRICAL TRIANGE the lower line of which has been violated or if not is about to be. Tapering volume supports this view. If you like to look at the same chart on a WEEKLY basis it is much clearer john b


Post Comment

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

6 Critical Money Making Rules