SP 500 – Market Analysis – 06/2009 – Part 2. Learn Stock Trading

In part 2 of the Market Analysis of the SP-500 we drill down into a weekly chart to combine the lessons we have learn from previous chapters.  This chart is again logarithmic and still has the long term trend line from 1982.

For the analysis we are using:

• Moving Averages 10,20,50,200 week
• The bottom window incorporates the 20 week Price Rate of Change (ROC)indicator

TeleChart2007 chart courtesy of Worden Brothers, Inc.

So what are the key points to note?

1. in 2003 we see the 10,20,50 week MA’s Cross Over, this is bullish
2. here we see in 2008 the 10,20,50 week MA’s crossover, this is bearish
3. in quarter 3 2008, the price and also the other moving averages drop below the 200 week moving average, this is a sure sign of a primary downtrend.
4. on the 14th May 2009 we see the 10, 20 week moving average cross over to indicate the turning point (bottom) of 11th March 2009 was really a bottom.

Point 4 shows us that using Weekly moving averages are a good indication of a primary change of character. But this signal appears only 8 weeks after the actual turnaround in the price. This is a significant delay, and cannot be used as accurate timing for market entry.

Use Of ROC as a leading indicator

Here in this chart if we scroll back to March 11th we can clearly see that Price Rate of Change (ROC) surged upwards before price itself started to move. This was a really nice early indicator.

TeleChart2007 chart courtesy of Worden Brothers, Inc.

Summary

the key lesson here, is when we evaluate a markets overall direction it is very useful to look at different time frames, Start out at monthly then zoom in to weekly. The final Part 3, of the Market Analysis will look at a daily Chart.

The first upside barrier for the SP to break though would potentially be the the resistance line set at 956 set at the June 12th high.

We also note that the SP-500 is way below the 200 week Moving average, this is a potential target for the future / end of 2009 to mid 2010.

See Part 3 for the final lesson on Market Analysis