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Generally, I believe 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. Let's start with the monthly view of
the S&P 500. The relative Strength Index
(RSI) seems to be a good indicator of the
cyclical bull and bear markets. Also, the 20
month moving average seems to act as
support. So what does this tell us? Well, so
far we have not transitioned from a cyclical
bull market to a cyclical bear market. And
this might be a buying opportunity for
stocks at or very close to their support
levels.
The weekly
chart below shows the same bull and bear
phases as the monthly chart above. Of
particular interest is whether the current
technical pattern is a rising wedge, which
is bearish or a rising channel which is
bullish as long as it continues. For now is
is best to assume we remain in a bull
market.
Next, let's look at another weekly chart of the S&P 500.
Notice that the 23 weekly RSI seems to be a
good bull and bear indicator. In addition,
the 65 weekly Exponential Moving Average
(EMA) at 1244 also acts as support indicating
is it holds this level is a good place to
buy. We remain in a bull market.
The resistance of May 8, 2006 high
of 1327 was broken in September. Presently we are
seeing either a rising wedge or a rising
channel. A break below the lower trend would
likely indicate a pull back.
Also, note the 50
moving average crossed up
through the 200 moving average which is a
positive. Also we seem to have negative
divergence on the MACD histogram indicating
a pull back is in the near future. Buying near support levels are
still the way to go. However, we need to be
ready to sell quickly if the support levels
fail. Keep our stops in place.
Based on this
brief review of the S&P 500 charts, I will look
to buy
stocks that are at or near support levels. I will also
begin to look for short opportunities
including the Rydex inverse funds that offer
2 times down side leverage and various ETFs
such as QID, should these support levels
fail. |
