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Stock Market Price Bounce Encounters Resistance And Reverses Direction
By Geoff Green | March 31, 2008
Stock market index prices reversed over the last few trading days in a classic display of encountering overhead resistance.
Worse, major stock market indexes are appearing to accelerate the downtrend in stock prices that started in November of 2007.
Take a look at the chart of the Wilshire 5000 daily stock prices below. I have drawn a trend line across the tops of the stock prices set in October, November, and December of last year. Normally you would expect stock prices to return to this upper channel on upward price bounces in the longer term bearish trend.
However, the drastic stock price drop in January of 2008 and the ensuing symmetrical triangle pattern formed during the February and March price consolidation appears to have created a steeper downward trend.
This steeper trend is shown by the upper trend-line that connects the late 2007 price level with the most recent highs in prices set in February and March of this year. The lower trend-line is shown by the line that connects the November and January 2008 lows.
Stock prices did in fact rebound after the bearish break-out from the symmetrical triangle to the expected level of the lower triangle floor at around the 13,600 price level.
But then increasing stock prices met the overheard resistance level that extends back to the August 2007 lows as shown by the yellow bar.
Although stock prices managed to break through the center of the Bollinger Band, prices failed to reach the upper band, another indicator of this stock price bounce weakness.
Consistent with stock price action during a bear market the Relative Strength Indicator (RSI) was rebuffed at the 50 level, the ADX indicator is also showing weakness.
Although usually not significant indicators for a trending market, the stochastic and the MACD oscillators are in full agreement for lower prices ahead.
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Written by Geoff Green, at http://www.profitable-investing.com Copyright 2008.
Topics: Bollinger bands, Daily Commentary, MACD, bearish, indicators, relative strength, stochastics, technical analysis, trend analysis |
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April 2nd, 2008 at 9:15 am
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