Welcome to part three of our Market Analysis masterclass.

This time we will drill down into the SP-500 chart in greater detail focusing on the last 10 months on a daily chart

We will be using

• Logarithmic Scale
• Daily Chart , 1 Bar = 1 Day
• Moving Averages 10,20,50,200 bar
• ROC of Price 20 Day
• Volume (with Linear regression 30)

TeleChart2007 chart courtesy of Worden Brothers, Inc.

What do we see in the chart?

1. in the middle of March the 10 & 20 Day moving averages crossed upwards
2. but at the beginning of July the Moving averages are in decisive, yet the 10,20 & 50 look about to converge.
3. In the middle windows we see that Price Rate of Change is divergent with the price pattern since October 2008, which is normally bullish.
4. Since April 2009 ROC has been steadily falling showing a significant price slowdown and congestion area.
5. Since March 2009 Volume has been falling.  As we know falling volume can indicate fear of rising prices. So falling volume indicates consolidation as  demand slows.

Is an inverse Head and Shoulders Pattern in progress ?

from this chart we can see clearly

• the 1st Shoulder formed in November 2008 on increased volume (typical for Head and Shoulder Pattern).
• the Head formed on heavy volume in March 2009. (typical for Head and Shoulder Pattern).
• Now in June / July 2009 the price bounced off the neckline at 950 points, and is beginning to head downwards again on light volume, which is typical of the 2nd shoulder forming on an inverse Head & Shoulders pattern.

Stock Market Forecast

1. Price moves down to form the final shoulder between 750 and 850 points, on lighter volume then pushes up though the Neck line on huge volume, this would complete the bottom and signify a reliable push upward to new highs for the year.
2. Price continues to trade sideways from here, for a number of months until some very good news leaks back into the market which fuels a rally.
3. Price moves down to the bottom in March, this is highly doubtful as most of the Fear and Shock should be priced into the market already. But if this happens it could represent another excellent buying opportunity.

Any of the above scenarios could occur. Scenario 1 is most probable, followed by 2 then 3. But only the market will decide what happens from here.