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S&P 500 Stock Market Trends - March 2012

Monthly Stock Market Trend Archives

The market indexes are testing important resistance levels. If we have a breakout with above average volume it will be a positive sign the rally will continue. On the other hand, if the market cannot break through, we should expect a pull back, representing a buying opportunity.

The economy is creating new jobs even as we see some cut backs in the government, especially at the state and local level. However, employment remains at least 5 million below where it stood before the great recession. This does not count all the new entrants into the work force. While the new jobs number is a good sig, we still have a long ways to go.

I still expect long-term sideways movement in the markets. A slow down in global markets will hinder growth in the U.S. The markets will reflect this.

Big Picture S&P 500

This is a monthly chart for the S&P 500 showing 20 years of performance. Since this index is the one used by professional traders, it is important to understand how it is performing. This chart is also excellent at defining the longer term trends for the market.

In 2009 the end of the bear market and the stock market bottom came at the long term rising trend. Shortly after the monthly Slow Stochastic rose through 20 then the MACD rose through its 9-month moving average. Finally, the RSI climbed through the 50 level, though it is testing this bull-bear market indicator now.

Most recently, the S&P 500 crossed through the 24-month exponential moving average. As long as it remains above this level, a bull market is in place.

Presently, the RSI is above 50 a sign of an up trend.

The MACD turned back up giving another buy sign

The Slow Stochastic is turning up after failing to reach 80. If this indicator continues to trend up, it is another sign the market will trend up.

There is resistance at the lower high reached in 2011 around the 1,400 area.

From a monthly chart perspective the market is trending up.

As expected, in 2011 the market remained in a trading range (1,400 and 1,100). I expect a similar pattern in 2012.

For now, I intend to invest as though we are in a market that trends sideways in a wide channel in a trading range (1,400 - 1,100) that will be the dominate pattern for 2012. This will give us opportunities to buy at low points and sell at high points. We can also use our call writing strategy effectively.

You can click on this Big Picture S&P 500 link below to see a current version of this chart.

S&P 500 Weekly Chart

The four-year weekly S&P 500 trend chart shows the test of resistance at the recent high in the 1,380 area. Recent volume has been at or below average, a sign many investors are not participating.

The ascending trend offers support as does the 200-week moving average.

RSI is above 50 a sign of an up trend.

The MACD is trending up, a sign of a market rally.

The Slow Stochastic is above 80. When it falls through this level, it will be a sell sign.

The declining volume is a worry as it is telling us many investors are not buying into the idea the rally will continue.

The weekly chart pattern indicates the S&P 500 is nearing a decision point as dictated by the resistance level at the 1,380 area.

You can click on this S&P 500 Weekly Chart link below to see a current version of this chart.

S&P 500 Daily Chart

On the daily chart the S&P is testing resistance at the 1,370 area. Volume is below average, it is telling us that many investors remain skeptical of the move up.

RSI is above 50 a sign of an up trend.

The MACD fell through its 9-day moving average giving a sell sign.

The Slow Stochastic is back above 80. When this indicator falls through 80, it will give a sell signal.

The slope of the 150-day moving average is another important indicator. When it slopes up it is telling us the trend is up. When it points down the trend is down. The slope of the 150-day moving average is now up. If the market remains above the 150-day moving average, the slope of this indicator will positive telling us the market is in an intermediate up trend.

Watch the volume on the attempt to break through the identified resistance.

This link S&P 500 Daily Chart will give you a current perspective on the S&P 500.

Summary

It looks like the markets will test this resistance area. If it fails to push through with above average volume, we should expect a pull back, representing a buying opportunity. Now is a good time to add some down side protection as the short term risk in the markets is elevated.

Given this analysis of the S&P 500 trend line charts, it is important to position your portfolio for a market that is more likely to trend in a range (1,400 - 1,100) with cyclical rallies and pull backs.

Selecting the right sectors and stock picking will become more important to your success. Look to buy on dips in the market to important support levels. Then add down side protection at interim high points using trailing stops and protective put options to help improve the overall return.

The charts of the S&P 500 trend lines provide a good way for investors to align their portfolios with the overall market trends. Picking the right sectors and stocks will become even more important. Look to buy on dips in the price of the S&P 500 trend charts on the next pull back.

Be sure to use proper capital management techniques including trailing stops, protective put, covered call options and position sizing. When the pull back ends, look to add to long positions with stocks and ETFs from the sectors that are likely to outperform the overall market. Keep in mind, Warren Buffett's first rule of investing is to not lose money. Be patient waiting for good entry points.


As of the end of December 2011, our Stock Portfolio was up 12.3 percent and our sector portfolio was up 5.4 percent. The market as measured by the S&P 500 was essentially flat.


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