Stock Market Analysis – SP-500

Well, everyone is getting excited!  We have seen a 6 day rally in the US Stock Markets and indeed around the world, so where does that leave us?

Are you bullish or bearish?

As mentioned previously the economic outlook is not looking good on the whole, we are seeing a jobless recovery in the US and in most major markets production and demand is still down.  The fittest companies are surviving through endless rounds of cost cutting and redundancy programs.  However we are seeing good earnings coming in.

But what are the markets telling us?

To assess this we use Technical Analysis.


Technical Analysis of the Stock Market

Chart provided courtesy of Worden Brothers Inc.

Stock Market Analysis

Looking at the chart of the S&P-500, we can take a glimpse of the state of the US Markets

  1. The most recent rally has reached the top of the down-trend resistance line (top pane in the chart)
  2. The price has not yet surpassed the 200 day moving average (red dashed line)
  3. The previous June rally failed to significantly pass or hold above the 200 day moving average, meaning is is a significant resistance line
  4. MoneyStream (alternatively MoneyFlow) is still remaining very bearish, although it recently crossed it’s moving average, we would like to see it cross its own down trend-line (white arrow middle pane)
  5. This recent rally has seen a significant drop in volume, meaning that although the market is pushing higher, less people are trading this rally.  This infers that people are backing away from the increasing prices and are concerned about a further downside move.

Possible Scenarios

  • Most likely – the market will move up to test the 200 day moving average at approximately 1115, then move back down to continue the downtrend eventually surpassing the July low.
  • Less likely but still possible – market will move up and break through the 200 day moving average.  If this happens we would like to see the price hold above the 200 moving average for 3-5 days, and see increasing volume.  This would give us a good indication the up-trend will continue and represent a change of character for the short term.

No Absolutes

There are no absolutes in the stock market, especially when making predictions.  We can only make an analysis based on the data we have, form conclusions, rank them in order of possibility and create an action plan based on those likely scenarios.

The market usually continues its current trajectory (in this case down) until it proves that its direction has changed.  The most likely proof here is a significant break of the 200 day moving average, preferably on increasing volume.

Good luck with your plans.


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