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Bullish Rally Still Alive Within The Longer Term Stock Market Down Trend - How Much Higher Can Stock Prices Go For Now?
By Geoff Green | April 25, 2008
Our stock market timing expertise and trend analysis certainly caught this updraft in stock prices since the beginning of April, but is there enough upward trend momentum left to break through the near-term overhead resistance?
After a strange week of trading, the short term up-trend is still alive. However, stock prices are heading into a formidable resistance area as the stock market approaches the 200 day moving average on the Wilshire 5000 and the market lows set in March of 2007.
The stock market survived an avalanche of bad economic news this week which included consumer sentiment lows, sales of new homes at 16 year lows, pot-shots taken at unidentified vessels in an already volatile area of the world, and disappointing earnings news from Microsoft to top off the week.
Microsoft tumbled more than 6% today on rising volume and the big tech bellwether gapped back below its 200-day moving average. Since MSFT is the biggest stock in the Nasdaq 100, that drop naturally had a depressing effect. And it may be coming at a bad time - there will be lot’s of worrying over the weekend about that snippet of news and it may affect Monday’s trading, at least in the morning.
The week was also marked by strong rotation of dollars out of the leading stocks into falling stocks - or at least stocks that investors hoped were near a turn to an upwards trend. Unfortunately, if these stocks don’t turn we may experience additional selling as the hopes of those bottom-fishers and knife-catchers are dashed.
Let’s take a look at the weekly chart.
You can clearly see that stock prices are going to start to see the headwinds of the resistance level between the Wilshire 14,000 and 14,500. In addition, prices need to move above the 200 day moving average and the down-trending resistance line shown on the chart above.
The indicators are still showing strength. The Stochastics, CCI and MACD are all pointing to higher prices ahead.
However, as regular readers know, stock price action and volume are the most important indicators to watch for trend and market timing analysis. Unfortunately the last few weeks trading have been less than inspiring, especially in the volume department.
Let’s take a look at the daily chart to determine our upcoming weeks market timing strategy more closely.
The daily chart is showing a clearly defined up-trending channel that started from the mid-March lows and has produced fairly consistent highs and lows. The highs are currently following the bullish bollinger band upwards which is positive for a bullish trend.
Volume once again has been less than inspiring though.
Supporting the bullish trend continuation is continued strength in the indicators - RSI, Stochastics and MACD. I’m not that impressed with the ADX line though.
What does all this mean for us?
As usual I don’t make stock market predictions.
However, what I will watch very closely for this week is any indication that the current bullish up-trend is ending. Right now our stop strategy in our model portfolios is to sell positions on either a 10% loss or a 30% gain.
The fact that we have several positions with approximately 20% gains in the portfolios and we captured a 30% gain in POT which we took to the bank makes me happy.
If a breakdown in the uptrend does develop we’ll likely change our stop strategy to 5% on a loss and 20% on a gain, or we’ll sell all positions completely.
Subscribers will get a mid-week update should that occur.
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Written by Geoff Green, at http://profitable-investing.com Copyright 2008.
Topics: Bollinger bands, End of Week Commentary, MACD, bullish, model portfolio results, moving average, price, relative strength, stochastics, trend analysis |
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