Dear Liberated Stock Traders, I thought it about time to perform another stock market analysis as the US Markets are at a key pivot point.  The question is…

Will the market continue the current sideways consolidation, or move upwards to start a new up-trend?

To analyze this I am using a 2 year chart of the S&P500.

Chart Courtesy of Worden Brothers inc.

Stock Market Analysis & Observations

1. The US markets have not recovered to the highs of 2010
2. The 10 month strong medium term uptrend in 2009 was broken in April 2010
3. The SP-500, NASDAQ Composite and Dow Jones Industrials have all moved into a situation where the 200 day moving average is now forming a significant level of resistance.
4. Breaking the 200 day moving average significantly will signal a new uptrend which should challenge the 2010 highs.
5. The S&P 500 is in a sideways consolidation
6. The fear of a double dip recession is receding.  However significant stock market growth is hard to see at the moment given the shaky underlying US fundamentals specifically jobs, housing and demand.
7. There are plenty of healthy stocks out there with excellent balance sheets, growth and futures.

Which direction for the US Stock Markets?

The trend is in effect until the market shows us otherwise.

• The Long Term Trend is still down.  We are way off our all time highs of 2007
• The Medium Term Trend is sideways. We are currently in a medium term consolidation having made no significant move upwards for the last 6 months
• The short term trend is UP.  The last 3 weeks has been good, but now the trend has 2 options.

1. Continue the sideways move and retrace back to the support line at circa 1043 over the next 3-5 weeks
2. Break through the resistance line, and leave the 200 day moving average behind, signaling a new short to medium term uptrend.

Which way will it go, no one knows.

What is important to remember is that you do not always need to be in the market.  You can wait on the sideline for the opportunity to present its self.  If the market moves down a simple shorting method to continue to build on your gains could be to use a short ETF such as the RSW Rydex Inverse 2X S&P500 EFT*.  This EFT attempts to seek gains of a multiple of 2 times the opposite move of the S&P500.  So if the S&P500 moves down 5% in a week, this ETF will ideally see a 10% gain.  It is a very handy low cost tool to see profits on the downside as the markets retreat.

*This is not a recommendation to go short on the market or to use this specific ETF it is an example to get you thinking of these options.