Technical Talk: Tough To InterpretAugust 25, 2011 @ 12:01 PM EST
Although we disagree with the idea that "the tape tells all," it is important for all traders to stay on top of key technical happenings on the charts. Below is our current "executive summary" take on the State of the Tape.
Technical Talk: August 25 , 2011
Our Current Take:
Let's be honest; trying to interpret the news these days is becoming more challenging than usual. And with all the volatility, even trying to interpret the chart action is a tough. But here's the way we see it. Stocks usually find an equilibrium point in front of "big, bad events" that are well publicized. So, it appears that the indices are currently sitting just above the neutral line of the recent highs and lows. As such, this level would seem to make sense. From here, we wait for Bernanke and then try to read the market's reaction.
We would consider being short-term buyers at: A close over 1210 on the S&P 500
We would consider being short-term sellers: A close below 1120 on the S&P 500
Trend and Momentum Indicators:
Short-Term Trend: The short-term trend rating remains neutral at the present time. However, it wouldn't take much of a rally for us to upgrade the trend.
Intermediate-Term Trend: We remain concerned with regard to the velocity with which the intermediate-term moving averages are now declining. In short, the depth of the decline has been more severe than anything we've seen in a while. Thus, we will continue to call the i.t. trend negative for now.
Market Internals: No change in our TBC models overnight. And given the way these models work, we would need to see a fair amount of improvement from both the trend and breadth indicators for the models to uptick.
- TBC = Trend-and-Breadth-Confirm Model
Market Momentum: Our momentum models have just started to perk up with two of the three now neutral. So, if the bulls can now find a reason to be, we might see some improvement.
Support/Resistance Zones for S&P 500:
- Current Support: 1120
- Current Resistance: 1180-1200
Early Warning Indicators:
Overbought/Oversold Condition: The indices are no longer oversold from a short-term perspective. Thus, it will be interesting to see if conditions can actually become overbought during the next rally try. Remember, in bearish environments, stocks tend to avoid the overbought zone for long periods of time.
Investor Sentiment: As we've been saying, our sentiment indicators are not as positive as we'd like at this stage. But this doesn't mean that stocks can't rally impressively in the near term.
Below are snapshots of the two main charts we watch closely each day from a technical perspective. The indicators we display on the charts below include: 50 day weighted ma (purple), 18 day weithged ma (cyan), 10 day weighted ma offset by 2 days (orange), 4 day weighted ma offset 2 periods (dashed blue) and stochastic %K using 14 and %D.
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