Technical Talk: It's a Bear Market, So Naturally...October 4, 2011 @ 11:58 AM 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: October 4, 2011
Our Current Take:
With calls being made this morning that stocks are now officially in a bear market (to which, I'd like to say, "ya, think?") and the charts of the S&P, Smallcaps, and Midcaps all showing clear breakdowns, an oversold, countertrend, reflex rally is to be expected. Thus, it appears that the combination of Ben Bernanke's ongoing pledge to take action and a rebound in the euro have triggered a bounce. The first upside target is obviously 1100 on the S&P. However, the more important level is the old support at 1120. Aggressive traders can certainly play the move but longer-term investors (you know, the people who look past the lunchtime bell) may want to sell rallies unless something fundamental changes.
We would consider being short-term buyers at: A close over 1120 on the S&P 500
We would consider being short-term sellers: A close below 1100 on the S&P 500
Trend and Momentum Indicators:
Short-Term Trend: While stocks are bouncing and we could see the rebound continuing, the short-term trend is clearly broken and negative.
Intermediate-Term Trend: One glance at a weekly chart makes it obvious that the intermediate-term trend remains negative. Until and unless the bulls can reverse this trend traders will want to sell into rallies.
Market Internals: All three of our TBC models (we've added a longer-term version on the NASDAQ which has impressive results) remain negative this morning. Again, if the bulls are to get something going, it is critical for this type of confirmation model to show some signs of life.
- TBC = Trend-and-Breadth-Confirm Model
Market Momentum: Our momentum models remain quite negative. We will be watching these closely for signs of improvement on any rally tries.
Support/Resistance Zones for S&P 500:
- Current Support: 1075
- Current Resistance: 1100, 1120
Early Warning Indicators:
Overbought/Oversold Condition: The market remains oversold from a short-term perspective and moderately oversold from an intermediate-term view. As we've pointed out from time to time, the best rallies come when these two cycles are "lined up."
Investor Sentiment: Our sentiment models are improving steadily here. And while I would prefer to stop hearing everybody and their brother "calling a bottom" (the bottom occurs when people give up, not when everyone is looking for it), the sentiment picture is improving.
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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