Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Stock Market Monthly Trend Analysis- October 2008

Stock-Markets / US Stock Markets Oct 02, 2008 - 09:53 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 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.

In the turmoil of September, we have fallen through the 1200 support level and are testing the 1150 area. Should the 1150 level fail the next support is at the 1050 area.

The MACD is trending down, while the Slow Stochastic is below 20, a point where it tends to turn up. We could still see further moves down before the market turns back up.

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

1

The weekly S&P 500 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.

In June, the fall through the 200-week moving average was another sign of further weakness.

The 1300 level offered resistance as the S&P 500 struggled to move up on declining volume.

Then it fell through support at the 1230 level and is testing the three-year low at the 1170 area.

We could get a back test of the 1230 level on any rebound.

RSI below 50 indicates a downtrend. MACD fell through the 9-week moving average, a sell sign and it continues to trend down. Slow Stochastic is has risen through 20, a buy sign, though it often is an early indicator.

The overall trend is still down, so any move up is temporary and likely to only last a few weeks.

1

In the daily S&P 500 chart below a broadening wedge has formed. This is a bullish formation indicating we are more likely to see a move up soon. Look for a break through the upper wedge trend line as a sign the market will go higher. If that happens, we will most likely test the bear market downtrend line. This could signal a year-end rally that often takes place in late October through November and even December.

Should we get a move up, look for resistance at the descending trend line as well as the 200 simple and exponential moving averages.

RSI is below 50 indicating a downtrend. The MACD continues its downtrend with no sign of a move up. The Slow Stochastic signaled a buy when it moved up through 20, though it is having difficulty getting above 50, another sign of weakness.

Since we are entering earnings season, we should expect more volatility as investors assess the performance of companies in the latest quarter and digest their guidance.

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 of a move down in the markets, you might consider using the short and ultrashort ETFs.

1

Given this perspective, it is important to have your portfolio positioned for bear market. as expected last month the market tested and then fell through the recent lows of July 2008. When the market falls during a bear market, you should either be in cash or be short. The short and ultrashort 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 market has formed a base. Most likely the prices of many companies will be even lower. 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.

We have not yet formed a base for an interim move up, but we might see one take shape over the next few weeks. If we do, then it is a good sign that a move up in the markets will take place. Should that happen, close out any shorts and go long in key sectors and stocks that should do well during the next interim up trend.

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.

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 © 2008 Hans Wagner

Hans Wagner Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

chris
07 Oct 08, 21:51
stocks

what are your favorite stocks?


Post Comment

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