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Market Trends - 3/2/2007

Generally, I believe it is best to begin with the big picture in mind and then work our way down to weekly and then daily views of the charts. Let's start with the long term view of the S&P 500. The relative Strength Index (RSI) seems to be a good indicator of the cyclical bull and bear markets. Notice that the 23 weekly RSI seems to be a good bull and bear indicator. In addition, the 65 weekly Exponential Moving Average (EMA) acts as support. We remain in a bull market though we are experiencing a pull back toward support. This should present new buying opportunities.

The resistance of May 8, 2006 high of 1327 was broken in September.  The weekly S&P 500 below was in a bullish rising channel that broke up, however, volume fell off. Then the index fell back through the rising trend line. Support is now at the 50 week moving average, the prior high in May 2006 of 1327 and the lower rising trend line. RSI at or above 50 indicates the up trend is still intact. The recent pull back is good as the market needed to consolidate its gains. The MACD histogram showed negative divergence, indicating a pull back that did occur.

The daily S&P 500 chart below shows the recent pull back. RSI had remained above 50 throughout the move up since August 2006. It is now near 30 indicating the current up trend is over. This pull back is a positive sign as the market needed to consolidate its earlier gains. Once this action is complete and we have reached a near term bottom, I expect the market to resume its move back up.

Given this perspective, we are still in an up trend that is experiencing a consolidation. I am looking for good companies that are trading lower, especially those that have held up well in the recent pull back. I also am looking for stocks that are trading near their key support levels. Look to buy when the pull back is over.

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