|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. You will notice that the chart and the value of the indicators change as we move from a monthly to a weekly and then a daily chart. This is a normal part of the technical analysis.
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. In addition, the 78 week Exponential Moving Average (EMA) acts as support. We remain in a bull market as we tested the all time high of the S&P 500 at the 1553 area and pulled back. I expect the market to pull back toward support to consolidate the gains it has made in the last few weeks before trying to push through this key resistance level. Also, October is the second weakest month of the year for stocks, so I expect continued volatility throughout the month.
The weekly S&P 500 below is in a bullish ascending triangle. Support is now at the the 50 week moving average and the rising trend line. RSI above 50 indicates an up trend.
So far it looks like the first test of the all time high at the 1553 area caused a pull back to consolidate gains before the market moves up again. The MACD is breaking up through the 9 week moving average (red line) indicating a move up is expected.
this further confirms we are in an up trend though some consolidation is to be expected over the early part of October. Also, keep in mind that this is earnings season so expect some volatility as we get good and bad surprises from various companies
The daily S&P 500 chart below shows the recent pullback of an A-B-C Elliott Wave down move. Note that we broke up through the 50 day moving average, a positive sign.
RSI is above 50 indicating an up trend. the MACD could be turning down, which would indicate a pull back. Look to buy on pull backs to support levels in preparation for the next move up that is likely to begin in late October and carry through into the first part of 2008.
Given this perspective, we are still in an up trend that is consolidating prior gains and could pull back to support levels before trying again for the 1553 all time high. I am looking for good companies that are trading lower, especially those that have offer good value and growth opportunities. I also am looking for stocks that are trading near their key support levels. This pull back will present us with some very good buying opportunities.
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