I’ve decided to break this out as a stand along posting. The question is simple:
Is the SPY S&P 500 looking like it’s done going down now? Has the recent run up been a ‘counter trend rally’ or the start of a ‘new bull run up’?
This is a particularly hard call to make, as it’s a particularly difficult time. News Flow is a strong mix of positive earnings and positive fundamentals for selected businesses and sectors, this is mixed with negative outlook from many, earnings misses from others, and general manic depressive cycling out of Europe on how much good money they wish to throw after bad into the PIIGS “social welfare” states.
Add in that the USA does not yet really have any clear prospects of getting employment up, taxes down, and businesses back to growing (other than selected exporters) and it’s just not clear where any money is going to come from to support more buying by the consumer. Printed money just reduces the size of the savings and equity of those folks who make up the most of the buying public. (For the first time ever, the Baby Boomers are headed to retirement, not more earnings, so reduction of their savings and retirement packages are NOT going to increase net spending…)
So can we see anything in the charts that helps us to select which bits of these stories matter?
These charts are live charts, so will change over time:
OK, this is a very slow chart, so will turn positive rather a bit after the actual turn. I’m “OK with that” as I’m interested in being “Late in, Early out”. Does it have anything positive to say?
Price is below the SMA lines ( 20 steps of 5 day weeks, or 100 days. So 100, 200, 300 day SMA stack). Price is returning from below. That’s a negative sign, but prices have to cross over the SMA stack and return to it from above to be a confirmed positive direction. For now, that’s still a “counter trend rally”. We’re pulling away from the lower Bolinger Band, a positive sign. RSI is nearing 20, but didn’t get there, a slightly negative sign. For this long a term, it ought to get to near 20 for a reversal (but RSI is not always enough alone). The longest term SMA line is still sloping up, but the faster lines are looking more like a crossover to the downside happening. Mixed at best. Ambiguous comes to mind. If prices fall away to the downside, we’re getting a confirmed downturn. If prices punch back through, it was just a ‘strong correction’. Sigh.
MACD is clearly below zero, so still saying “bear market, stay out” but is setting up for a crossover to ‘blue on top’ for a long term trade trend up.
DMI is ‘red on top’ but the red has crossed under the ADX black line. Blue is inflected up and red in inflected down. That crossover is often seen before a major reversal.
All in all, a bit ambiguous, but saying that at least in the short run, things are due for a bit of a positive trend. (Not a big surprise as we’ve had about a 10% rise in the last month or so).
BUT, in the context of an already established downtrend, it’s not enough to say ‘bear phase is over’. Just showing a bit of promise. If we move into a faster chart (daily tick marks) can we see an earlier shift to a positive run? Enough confidence to get off the sidelines and make some ‘swing trades’ and maybe even some ‘bottom fishing’ buys and hop on some ‘momentum’ stocks?
First off, RSI has touched 20 and had a ‘higher low’. That’s a ‘reversal’ on this time scale.
MACD is not only ‘blue on top’ but also ‘above zero’.
The two of them together gave a nice “buy now swing trade” call about that last deep bottom at the start of the month. (Unfortunately for me, I was distracted by some work issues about then… so didn’t get a trade on).
DMI has gone to ‘blue on top’ as well. A nice confirmation. But ADX is still low, so strength is weak.
Prices have crossed over the SMA stack, so now we just need to have it return to the SMA stack from above and fail to punch back through. We don’t yet have a reversal of the SMA stack, so that’s not a positive sign.
At the moment, it’s not yet a confirmed reversal.
There are some positive signs. Some nice “swing trade” indications.
There is enough to trade on a daily chart, not enough to ‘buy and hold’ for the long term. Perhaps enough for selected companies and sectors that have enough ‘momentum’ to beat any secular downtrend that might persist. Enough to trade, not enough to commit. Yet.