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S&P 500 Stock Market Trends - November 2010

Monthly Stock Market Trend Archives

The S&P 500 is trying to push through resistance at the 1,185 area.  If it succeeds the 1,220 is the next resistance level. 

The index indicators are telling us to be careful as they are at high points where they will signal a move down.  So far the news of the elections and the Federal Reserves Quantitative Easing 2 has not moved the markets, as investors assess what to do next.

Starting with the indexes gives an overall perspective to the markets. This is 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.

The bull market of the last five years broke down when the S&P 500 turned down through the 24 month exponential moving average. The bear market began when the index fell through the 24-month exponential moving average. Also, the RSI tested the 50 level, another important indicator of bear markets (if the RSI remains below 50 then we are in a bear market) and turned back down. The MACD crossing down through zero is another sign of the transition from bear market to bull market. Finally, the Slow Stochastic fell through 80 as another sign of the beginning of the bear market.

The 24-month EMA has held as support indicating the market will continue to trend upward.  Should the 24-month EMA fail on a pull back it might be time to reconsider.  For now assume the trend is up.

The RSI is above 50 level a sign of a bull market.  The MACD is trying to rise through the zero level.  Monitor how it handles the zero level to get an idea of the strength of this move.  If the MACD turns down through its 9-month moving average it will be a sell sign.  The Slow Stochastic turned down at the 50 level, indicating another bear market is beginning, though it is turning back up.  Monitor how it handles the 50 level.

From a monthly chart perspective the rally is continuing, though it looks like the trend is sideways.

You can click on the link below to see a current version of this chart.

Big Picture S&P 500

The four-year weekly S&P 500 trend chart shows the formation of an ascending triangle, a bullish formation, with resistance at the 200-week moving average and the 1,300 area.  There is support at the rising trend. 

RSI is above 50 a sign of an up trend. The MACD is turning up through its 9-week moving average giving a buy sign. The Slow Stochastic is above 80 where it will turn down giving a sell sign.

The ascending triangle suggest that the market may turn down just above the 1,200 area,.  If it does, look to buy shares at the support of the rising trend, if it holds.

Should the S&P 500 break out through the resistance of the 200-week moving average and at the 1,220 area with above average volume, it is a good sign the rally will continue.  Look to buy quality stocks that will benefit from the quantitative easing from the Federal Reserve.

S&P 500 Weekly Chart

 

The S&P 500 is trying to break out through resistance at the 1,185 area.  this would be a very good sign if volume were well above average.

RSI is above 50 a sign of an up trend. The MACD turned down though its 9-day moving average, giving a sell sign. The Slow Stochastic is above 80 where it will turn down giving a sell sign eventually.  All three indicators have been at their high levels for two months, very unusual.

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. Until the last few days the slope of the 150-day moving average was negative. Now it is positive indicating the S&P 500 is in an uptrend.

I am still not all that positive on the market as the economic news is not that great.  The charts show a break and we could reach the 1,220 area before turning back down.  Or the attempt to breakout through the 1,185 level might fail. 

If we get any pull back, it is a good time to buy quality companies at lower prices. 

You can link to a current version of this chart below.

S&P 500 Daily Chart

 

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 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 October 2010, our Stock Portfolio was up 18.1 percent and our sector portfolio was up 14.7 percent. The market as measured by the S&P 500 was up 6.1% for 2010.

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