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Market Trends - 6/30/2006

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. For this week, let's start with the monthly view of the S&P 500. The relative Strength Index (RSI) seems to be a good indicator of the cyclical bull and bear markets. Also, the 20 month moving average seems to act as support. So what does this tell us? Well, so far we have not transitioned from a cyclical bull market to a cyclical bear market. And this might be a buying opportunity for stocks at or very close to their support levels.

Next, let's look at the weekly chart of the S&P 500. Notice that the 23 weekly RSI seems to be a good bull and bear indicator. In addition, the 65 weekly Exponential Moving Average (EMA) also acts as support indicating now is a good time to buy stocks at or near support levels.

Now take a look at the daily S&P 500. In May it broke down through an up channel that had been in place since November of 2005. Now the June 2, 2006 high of 1291 acts as near term resistance. The lower part of the up channel also will act as resistance if the S&P 500 can break through 1291 with good volume. With this view buys of stocks near support levels are still the way to go. However, we need to be ready to sell quickly when these resistance levels hold and keep our stops in place.

Based on this brief review of the S&P 500 charts, the market should move up near term to test resistance at 1291. I will look for buy stocks that are at or near support levels with initial targets that correspond to the 1291 S&P 500 resistance levels. I will also begin to look for short opportunities including the Rydex inverse funds that offer 2 times down side leverage and various ETFs such as PSQ.

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