The bigger picture

Hey everyone,

Right now markets have already retraced from recent highs from the surge that took place a few weeks back. The S&P 500 has dropped from a high of 1227 to yesterday’s close of 1199; the Shanghai Stock Exchange has dropped from 3186 to the 2800s; the STI has climbed to 3313, only to close at 3192 yesterday. So what do I see from the charts at this moment?

The STI is still moving along well in its upward parallel channel, with last week’s action taking the local index near to the bottom of the channel, after the rally to the top of the channel – 3300. Up close, it does seem like the STI still has some room fur downside. But this post is going to be a bird’s eye view of the STI, so I will take a mid term horizon in mind. I have a resistance level in place, and I consider it to be quite an important level. Take a look at the small yellow arrows I have on the chart (click on the charts to enlarge them). 3300 seems to be a crucial level for the STI. The last rally brought us all the way there, but that level served as a resistance zone. If the STI continues to trade in the channel, I will look for a econ test in the next few weeks leading to December. For now, I estimate the top of the channel to come in at 3400. So that would be my next target for the STI. Once 3300 is cleared, look for 3400. I like how the 50-day MA is still hugging onto the channel, so with price floating above this average, i have to continue being a bull on the STI.

Next up, I have the Dow Jones Industrial.

The last rally in the stock market has brought the DJIA to the 11000 region. Looking back in time, the 11000-11500 zone has been where the DJIA has bounced down from on many occasions. Nearer in time, the final pullback before the almighty collapse in 2008 was in this 11000 region. The recovery that ensued also stopped at this region before dropping 12% (purple arrow). While I am not hinting that I am turning bearish on the market straightaway, I am concerned with where some indices are at the moment. For the optimists, let us hope the DJIA does receive another rally to bring it into the clear. As indicators like the GMMA do not show signs of a trend change, I will maintain my bullish posture on the markets. The MACD is also still in positive territory, so I have no reason to believe the market should start turning sour yet.

 

As for the Dow Jones Transportation Average, the picture looks a little better. I see 4750 as a crucial level for the DJTA, and so far that leve has been held. In looking at parallel channels, I will sometimes add in a middle line in the channel if it fits. What I mean by that is that price level faces rejection or support at that line; somewhat like how some traders use the Bollinger Bands. The significance here is if this line is acting as resistance to the DJTA now, it seems like the next few weeks will not be rallying weeks for the markets. If that is the case, I see 4500 as support coming from the bottom of the channel.

The S&P 500 also paints a slightly similar picture. I have a large parallel channel showing the stock market recovery from the 2008 crisis. Now though, the S&P 500 is facing resistance at the 1220 level. This level also acts as the top of the lower half of the parallel channel. If we do not get up soon, it will seem like the S&P 500 will be in for some more downward movement in the weeks ahead.

That’s all I have for today’s post. Basically, I see indices at an important juncture. For the local bourse, I am looking at 3300 as the level to beat. Once the STI breaks above 3300 again, and hangs on for support, there should be nothing to stop the next rally from happening.

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

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