« MTL - Mechel Open - Proves To Be A Profitable Investment For Subscribers | Home | Economic Indicator Calendar »
End Of Week Stock Market Trend Analysis Flashes The Caution Light
By Geoff Green | April 11, 2008
The stock market reacted badly today to dismal earnings news from GE and a Consumer Sentiment reading that came in at a low 63.2 level, way undercutting the already low expectations of 69.
The last time the Consumer Sentiment reading was that low was in 1992 - another period in our economic history now labeled as recessionary.
This action may be good for mortgage interest rates but not stock market investing in the short term.
Does that mean we may be at the bottom of the recession right now? Only time will tell, but we won’t follow these readings to decide on our stock market strategy, we’ll let stock market trend analysis tell us what to do.
And right now our stock market trend analysis appears to be telling us to tighten up on stops, take profits where we have them, such as these in MTL, and generally play this market to the downside or move to cash.
Unless you are a long term trader, in which case you would want to review our weekly best stock picks in our subscriber area to make certain you are holding the best stocks at all times, no matter what the stock market does.
Let’s take a look at the Wilshire 5000 stock market index to help our trend analysis and define our strategy, we’ll start with the weekly chart.
As you can see on the chart below the broad stock market was running up against resistance at the trend line drawn in blue at just under the 14,000 level, and the market tops established in early 2008, and the lows of March and August of 2007.
The RSI indicator has run into some trouble at the 50 level which is just about where we would anticipate trouble in a bearish stock market. Although the slow Stochastic indicator is still pointing up, the MACD is starting to show weakness which is not a good sign.
All these put together seems to be predicting that the fledgling stock market rally we invested in over the last week is experiencing some headwind and is vulnerable to a turndown that may take the broad market indexes back down to the March lows - or beyond.
I have drawn some significant support levels on the chart:
To determine how to play the stock market daily trend that develops inside the weekly trend, let’s take a look at the daily chart of the Wilshire 5000.
Unfortunately the daily chart is displaying the same trend weakness as the weekly chart - only more pronounced. I have drawn two upper boundaries for the daily trend and note that the current high corresponds to the highs in all the market trend indicators I follow.
The RSI, Stochastic, CCI and MACD indicators are all pointing sharply downwards.
Combine the stock market action with the status of these indicators and the general nervousness surrounding earnings announcements that accelerate in the next few weeks and this market could be facing a short term price drop that could challenge recent lows.
On the other hand, if the lows hold in this next cycle that could be additional evidence that a more long term solid bottom in stock prices has been reached.
As the author and owner of this article, you have my permission to publish these postings & articles electronically or on your own Web site, free of charge as long as the following by-line and functional Internet link is included in its entirety.
Written by Geoff Green, at http://www.profitable-investing.com/ Copyright 2008.
Topics: Daily Commentary, End of Week Commentary, MACD, bearish, indicators, relative strength, stochastics, stock market recommendations, support levels, technical analysis |
Comments
You must be logged in to post a comment.
