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S&P 500 Stock Market Trends - January 2011

Monthly Stock Market Trend Archives

As expected the S&P 500 broke through resistance at the 1,220 level with the 1,300 as the next resistance level. 

The index indicators are telling us to be careful as they are at high points indicating the market could turn down. However, they can remain at high levels for many weeks.

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.

For December 2010, the S&P 500 closed above the recent closing high in April 2010, a good signal the rally is resuming.

The RSI is above 50 level a sign of a bull market.  The MACD is rising through the zero level, a good sign for the S&P 500. If the MACD turns down through its 9-month moving average it will be a sell sign. 

The Slow Stochastic turned back up at the 50 level, indicating the market continues to rise.

From a monthly chart perspective the rally is continuing.  While we might see a retest of the break through the 1,200 area, the rally remains in tact from a monthly perspective.

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

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. The price is breaking out through resistance at the 200-week moving average and the 1,220 area. The next resistance level is 1,300. The rising trend offers support.

RSI is above 50 a sign of an up trend. The MACD is trending up a positive sign for the market. The Slow Stochastic is above 80 where it will turn down giving a sell sign eventually.

The ascending triangle suggests that the market may turn down as it test the 1,300 level.  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 1,300 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 price continues to rise with the rising trend and the 50-day moving average offering support.

RSI is above 50 a sign of an up trend. The MACD is at a high level where it is more likely to turn down giving a sell signal. The Slow Stochastic is above 80. when it falls through that level it will give another sell sign.

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 remains positive, a sign of an up trend.

On any pull back monitor whether support at the rising trend and the 50-day moving average hold.  If they do the market will continue to rally and we have another buy on the dip opportunity.  If support fails, be sure the 1,220 level holds before committing new capital.

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 December 2010, our Stock Portfolio was up 22.6 percent and our sector portfolio was up 18.9 percent. The market as measured by the S&P 500 was up 12.78 percent for 2010.

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