Technical Overview: Week Of June 20th, 2011

After retracing 12%, from peak to trough, the stock market opened and closed almost unchanged for the week. On the charts this produced a doji candlestick which is usually interpreted as indecision in Japanese candlestick charting schools.

The S&P 500 index is now down to important support levels supported first by the simple 200 day moving average and second by the March 2011 lows (blue line). The long term moving average is not by itself not really significant nor magical. But it is psychologically important since it is foremost in traders’ minds. Losing the support of the long term trend makes many fearful of further losses and usually results in a self-fulfilling prophecy.

As we’ve already seen, the bulk of the various sentiment data featured in the weekly overview is supportive (in a contrarian way) of higher stock prices. Also, Rydex traders who are atrocious when it comes to market timing have thrown in the towel. The fact that this coincides with the support levels above is a good sign.

As I’ve mentioned previously, multiple indicators are suggesting that the correction is about to end; with one important proviso. That being that we are still enjoying a bull market. It is never easy to find market tops since they are marked by a slow degradation of momentum rather than the fearful spikes of selling we see in important bottoms. However, aside from the weakness in the cumulative advance decline lines, I haven’t seen any strong indications that the bull market has ended.

The cumulative AD line is a bit worrying. However, we’ve seen it act weak in previous bull market corrections. The most pronounced accompanied the April 2010 top.

Another technical indicator of breadth is the S&P 500’s Hi-Low index which is a ratio of the new 52-week highs relative to the new 52-week lows. As with other indicators, it is suggesting that stock prices have been pushed down enough to be attractive (within a bull market environment):

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2 Responses to Technical Overview: Week Of June 20th, 2011

  1. volar says:

    Top Notch.

  2. Kirk says:

    Great stuff as always!

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