Stock Market Trends – November 2010
After trending up since the beginning of September 2010, the market might be pausing or setting up for a move down. Following the trends gives you a way to position your portfolio to be on the right side of the trend. The monthly, weekly and daily view of the market trends lets investors view the trends from these important perspectives.
Monthly Stock Market Trends
Starting with the indexes gives an overall perspective to the markets. This is monthly chart for the S&P 500 showing 20 years of performance. Since this index is the one used by professional traders, it is important to understand how it is performing. This chart is also excellent at defining the longer-term trends for the market.
The bull market of the last five years broke down when the S&P 500 turned down through the 24-month exponential moving average. The bear market began when the index fell through the 24-month exponential moving average. Also, the RSI tested the 50 level, another important indicator of bear markets (if the RSI remains below 50 then we are in a bear market) and turned back down. The MACD crossing down through zero is another sign of the transition from bear market to bull market. Finally, the Slow Stochastic fell through 80 as another sign of the beginning of the bear market.
The 24-month EMA has held as support indicating the market will continue to trend upward. Should the 24-month EMA fail on a pullback it might be time to reconsider. For now, the trend is up from a monthly chart view.
The RSI is above 50, a sign of a bull market. The MACD is trying to rise through the zero level. Monitor how it handles the zero level to get an idea of the strength of this move. If the MACD turns down through its 9-month moving average, it will be a sell sign. The Slow Stochastic pushed up through the 50 level, indicating the trend remains up.
From a monthly chart perspective, the trend is up though we might get a pause at this level.
Big Picture S&P 500
Weekly Stock Market Trends
The four-year weekly S&P 500 trend chart shows the formation of an ascending triangle, a bullish formation, with resistance at the 200-week moving average and the 1,300 area. There is support at the rising trend.
RSI is above 50 a sign of an uptrend. The MACD turned up through its 9-week moving average giving a buy sign. The Slow Stochastic is above 80 where it will turn down giving a sell sign.
The ascending triangle suggests that the market may turn down just above the 1,200 area. If it does, look to buy shares at the support of the rising trend, if it holds.
Should the S&P 500 break out through the resistance of the 200-week moving average and at the 1,220 area with above average volume, it is a good sign the rally will continue. Look to buy quality stocks that will benefit from the quantitative easing from the Federal Reserve.
S&P 500 Weekly Chart
Daily Stock Market Trends
The S&P 500 encountered resistance at the high reached in May at the 1,220 level. If this resistance level holds, we are likely to see a pull back to the 50-day moving average and most likely to the 1,150 area.
RSI is above 50 a sign of an uptrend. The MACD turned down though its 9-day moving average, giving a sell sign. The Slow Stochastic is above 80 where it will turn down giving a sell sign eventually. All three indicators have been at their high levels for two months, very unusual.
The slope of the 150-day moving average is another important indicator. When it slopes up it is telling us the trend is up. When it points down the trend is down. The slope of the 150-day moving average is positive indicating an uptrend is in place.
If we get any pull back, it is a good time to buy quality companies at lower prices.
You can link to a current version of this chart below.
S&P 500 Daily Chart
Given this analysis of the S&P 500 trend line charts, it is important to position your portfolio for a market that is more likely to trend in a range with cyclical rallies and pullbacks.
Selecting the right sectors and stock picking will become more important to your success. Look to buy on dips in the market to important support levels. Then add down side protection at interim high points using trailing stops and protective put options to help improve the overall return.
The charts of the S&P 500 trend lines provide a good way for investors to align their portfolios with the overall market trends. Picking the right sectors and stocks will become even more important. Look to buy on dips in the price of the S&P 500 trend charts on the next pull back.
Be sure to use proper capital management techniques including trailing stops, protective put, covered call options and position sizing. When the pullback ends, look to add to long positions with stocks and ETFs from the sectors that are likely to outperform the overall market. Keep in mind, Warren Buffett's first rule of investing is to not lose money. Be patient waiting for good entry points.
About Hans Wagner
Hans Wagner Archive
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