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S&P 500 Stock Market Trends - October 2010

Monthly Stock Market Trend Archives

The break through resistance that has lasted since Spring 2010 is not overwhelming.  The market needs to at least pause before resuming its upward trend.  On the other hand this could be an overbought situation where we will see a pull back.  I am leaning more toward a pull back.  Time will tell.

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 at the 50 level a sign of indecision.  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 wavering.  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

Monthly Stock Market Trend Chart S&P 500 October 2010

The four-year weekly S&P 500 trend chart shows the formation of  horizontal channel with resistance at the 200-week moving average and the 1,300. There is support at the 940 area.  This is typical of a stock market that is facing a slow growth economy.

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 rebounded at the 20 area.  It is now above 80 where it will turn down giving a sell sign.

The trend on the weekly S&P 500 remains sideways between defined support and resistance.

S&P 500 Weekly Chart

Weekly trend chart of the S&P 500, October 2010

Support at the 1,130 held as the market rallied, though volume was just average.  There is resistance at the 1,170 area should the trend continue to rise. 

RSI is above 50 a sign of an up trend. The MACD turned up though its 9-day moving average, giving a buy sign though it is near a high point where it normally turns down. The Slow Stochastic is above 80 where it will turn down giving a sell sign eventually.

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. If the market remains above the 150-day moving average, the slope will become more positive, a sign of an up trend. We will watch this carefully.

I am still not all that positive on the market as the good economic news is not that great.  The charts show a break and we could reach the 1,170 area.

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 September 2010, our Stock Portfolio was up 14.1 percent and our sector portfolio was up 12.7 percent. The market as measured by the S&P 500 was up 2.9% for 2010.

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