Chapter 14 – How to Perform a Professional Stock Market Analysis

How does a PRO Technical Analyst Perform Stock Market Analysis? First, start with a Long Term Chart to Understand the History of the Market.

This is an excerpt from the Liberated Stock Trader Book & Trading Academy Pro Stock Market Training Course.  Chapter 14, Section 1.  This Chapter is dedicated to bringing together all the knowledge you have learned, starting with performing a Stock Market Analysis.

In this chapter, we attempt to pull together what we have learned to enable us to decide if the time is right to begin investing in the stock market.

We do this by completing the following steps.

  1. Perform a market analysis – is it the right time to buy?
  2. Perform a sector analysis – what are the strongest sectors at the moment?

Performing a Stock Market Analysis

Before I buy, I like to understand what is going on in the market.  As much of an individual stocks movement is defined by the overall direction of the market. If we analyze the state of the market, we should be able to understand the future short term, the medium-term direction of the market, thus increasing the probability of us being on the right side of any individual trade.

I have chosen to apply the “Technical Approach,” and will be evaluating the S&P500 index; this is a good barometer of the rest of the US Market and is a standard approach for many technical analysts.  Of course, analyzing the Russell 3000 is also beneficial as it encompasses almost half of US stocks, which is an important barometer.  All of the lessons shown here can be reused to evaluate individual stocks also.

Part 1: S&P 500 Long-Term View

To help review the history and direction of the market, I have used the following:

  • A monthly Logarithmic Chart
  • Moving Averages 10, 20, 200
  • Trend lines

To start analyzing an index, it is best to at first review the long term and then drill down into weekly then daily charts to look at the market action.


How to perform a Stock Market Analysis - Stock Market Training
Performing a Stock Market Analysis SP-500
  1. First, draw a trend line that connects the 1987 high with the 2000 high, two very significant market tops.
  2. Secondly, draw a trend line joining the troughs, connecting the important 1987 low and the bottom of the Year 2002 recession low. Note if you had used this trend line as a sell signal in 2008 and sold your stocks at this point, you would have avoided the devastating 44% drop in the SP-500 in 2008 / 2009 Crisis.
  3. Next, draw a line connecting the two major peaks, the market made a double top, failing to move higher than its previous peak, a clear warning sign.
  4. As the market began to move down, one should naturally look to the previous market bottom as a worst-case scenario. Drawing a long-term support line connecting the 2002 bottom through to the present day, we see that the SP-500, although moving through this line, did rebound quickly and find support there.
  5. Point 5 shows us that price moved decisively down through both moving averages four months before finally touching the long-term support trend line. An early sell signal.
  6. At point 6, we see that the 10 and 20-month moving averages cross 5 months later—a clear sell signal.
  7. Point 7 shows us where the market capitulated and began the huge move down.

The market has retraced about 50% of its loss since 2008 but still has a long way to go.
To understand further what the market has in store for us, we need to zoom in on the data, to a weekly chart.

This chapter goes on to analyze the Market at a weekly time frame, then a daily time frame.  We then also dive into performing a Sector Analysis.