Monday, January 27, 2014
At short term oversold. Rally here as happened last several times or it's a plunge toward the 200 DMA?
Writing this new post while the stock market is still in session and down intra-day. Just wanted to note that I'm getting short term oversold readings from my indicators. The last three times this happened the stock market in the next day or so bounced back for a rally that lasted about three or four weeks before stalling. In recent posts, I did anticipate a quick strong sell-off to occur
around January or February. This looks like what I was anticipating. The SP500 is now down over +4% below its all-time high of 1850 set seven days ago and about +4% above its 200 DMA. So will the SP500 continue to plunge down toward the 200 day moving average (at the 1700 level) I been worried about for the last few months? It could happen but I'm betting for a bounce in the next few days for another strong rally higher.
Monday, January 6, 2014
A look at bullish long term charts to go along with the usual short term overview.
Since the last post on a look out for a short term oversold rally, the SP500 had rallied +3% higher. Each of the previous two short term buy signals, I recalled on my last post, lasted about 4 to 5 weeks before stalling. The SP500 may had already started stalling last week given an overstretched price away from its 200 day moving average. It will be 14 months in mid January since the SP500 (along with the Russell 2000 and NYSE Composite) last touched its 200 DMAs. The SP500 is +8% above its 200 DMA so that's quite steep considering the index don't often go beyond 12+ months haven't touched its 200 DMA. The Nasdaq and Nasdaq 100 are 12+ months overstretched.
On rare occasions, the SP500 has overstretched up to 15 to 18 months before touching its 200 DMA again. Looking back, the years 1954 and 1994 comes to mind. Both have similar price patterns as 2013 and both continued to move higher the following year while stretching the streak to 15 to 18 months before touching the 200 DMA.
Like 2013, both 1954 and 1994 had big gains and the following years were up though about half of the gains of the previous year. Some of my quantitative work hints either or both of the 1st or 2nd quarter of 2014 could be a pause/consolidation phase before moving higher at the 2nd half of the year.
Now lets look at two long term charts I believe should indicate we are in a secular bull market that still have plenty of years to go on the upside.
The long term chart above shows three incidents of breaking above decade long resistance levels. This chart is from October 2013 when the SP500 was at 1695. It is now around 1830, already breaking higher two months later. In layman's term, this look very bullish long term. This is a technical view of a bullish price pattern.
The above chart, which has been circulated on the internet, shows the 10 year annualized return of the Dow Industrial index. The first 3 shaded green boxes indicates the stock market moving from oversold conditions at the beginning to overbought conditions at the end. If the 4th smaller shaded green box is just the beginning then it's likely there is many more years of upside to go. This is a fundamental view of a bullish return rate cycle.
On rare occasions, the SP500 has overstretched up to 15 to 18 months before touching its 200 DMA again. Looking back, the years 1954 and 1994 comes to mind. Both have similar price patterns as 2013 and both continued to move higher the following year while stretching the streak to 15 to 18 months before touching the 200 DMA.
Like 2013, both 1954 and 1994 had big gains and the following years were up though about half of the gains of the previous year. Some of my quantitative work hints either or both of the 1st or 2nd quarter of 2014 could be a pause/consolidation phase before moving higher at the 2nd half of the year.
Now lets look at two long term charts I believe should indicate we are in a secular bull market that still have plenty of years to go on the upside.
The long term chart above shows three incidents of breaking above decade long resistance levels. This chart is from October 2013 when the SP500 was at 1695. It is now around 1830, already breaking higher two months later. In layman's term, this look very bullish long term. This is a technical view of a bullish price pattern.
The above chart, which has been circulated on the internet, shows the 10 year annualized return of the Dow Industrial index. The first 3 shaded green boxes indicates the stock market moving from oversold conditions at the beginning to overbought conditions at the end. If the 4th smaller shaded green box is just the beginning then it's likely there is many more years of upside to go. This is a fundamental view of a bullish return rate cycle.
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