Can We Get Through The Line?

It’s important when looking at the charts and the stock market to use different lenses and look at everything from several different angles.  One lense I use is moving averages.  Now, all of you probably use them as well.  It’s just one thing on a big laundry list.  But, 21-day moving average has been a place past rallies have failed since late August on the S&P 500.  The only exception was early November.  We failed at this level 3 days ago and we’re pushing up against again today.  So, that would be a first passed test if we can blow through there.

I mentioned the other day a possible head & shoulders (upside down) forming.  We reached an intraday low on November 13th (left shoulder), then we rallied the next day and eventually we fell to an intraday low of 741 on November 21st (head).  We then rallied and have pulled back and maybe Monday’s low of 815 is the right shoulder.  That’s what the bulls are hoping for. 

I keep hearing everyone on television saying we’re in the bottoming process.  I believe this is really just to hedge themselves as that way they can be right if we go up or down.  I believe we’re in the middle of a range and it’s not extreme enough to make any big trades in here.  I still believe the path of least resistance will be down, not up.  I mentioned the 21-day moving average earlier.  If you look simply at that, you can see it hasn’t turned up at all since early summer time.  So, if you’re looking for more of a long-term move and waiting for a green light, perhaps one of the first things to look at is some of these moving averages turning up.  I’m looking for an improvement in the leading economic indicators and/or some improvement in the appetite for risk.  I’d love to have proof the economy is getting better but if everyone wants to buy stocks and prices are being pushed up, I’ll be in there buying with them even with a weak economy.

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2 Responses to “Can We Get Through The Line?”


  1. 1 Matt December 3, 2008 at 3:48 pm

    Karl,

    One technique I know for longer term investing or trading is to watch for the 200 MA on the daily chart turn up and for the weekly chart to make a higher close before buying (or use the 40 MA on the weekly, same thing). I did the reverse for my 401K and IRA accounts and got out of everything near the end of last year. I will miss the bottom waiting for this to turn back up but at the same time it is more conservative and easy to do.

    Thanks,
    Matt

  2. 2 Bryan December 4, 2008 at 12:55 pm

    Karl

    I enjoy your post

    It continues to amaze me all the (talking heads) looking for a bottom. Makes me wonder how really close we are to a bottom if everyone is looking for it? Even the talking heads on Fast money seem afraid and not sure what to do

    Later


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