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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. For this
week, 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.
Next, let's
look at the 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. Best to monitor activity for now.
Now take a look at the
daily S&P 500. In May it broke down through
an up channel that had been in place since
November of 2005. Now the June 2, 2006 high
of 1291 acts as near term resistance. The
lower part of the up channel also will act
as resistance if the S&P 500 can break
through 1291 with good volume. Also, 1280 is
another short term resistance level we need
to watch this week. Buying near support levels are
still the way to go. However, we need to be
ready to sell quickly when these resistance
levels hold. Keep our stops in place.
Based on this
brief review of the S&P 500 charts, the
market tested the up channel support level. I will look for buy
stocks that are at or near support levels
with initial targets that correspond to the
1291 S&P 500 resistance 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 PSQ, should these support levels
fail. Now is the time to be very careful
with the turmoil in the Middle East and the
economy weakening. |
