Tuesday, June 23, 2009

Long Term Optimism or Secular Bearism?

As the markets play around in the summer sun with Tuesday likely to see some modest recovery to yesterday's losses I took the opportunity to look at a couple of 30-year charts for S&P and Nasdaq.

I wanted to eliminate noise so tracked only 20-week and 40-week EMAs, monitoring where crossovers occurred. In summary, the most recent 15 years have been relatively stable compared to the more whipsaw nature of the previous 15. Are we entering a new whipsaw period?


Of interest too was the deep oversold nature of the recent decline - a decline which took the 20-week EMA outside of the lower Bollinger Band. Past occurrences when the EMA exceeded the (upper) Bollinger band where the pre-1987 crash and the pre-2007 crash. In each case the market headed south in a hurry. At this point, a counter rally of similar strength is unlikely but there is little reason for shorts to be aggressive here - even if buying is not necessarily the preferred choice.

The Nasdaq didn't gain during its recent cyclical bull leg as the S&P did. However, its 20-week EMA dipped outside of the lower Bollinger Band on its March low as for the S&P. It's closer to a bullish crossover than the S&P but will it bring reward?


The eventual outcome will probably be quite scrappy and not very tradable but such is the nature of a recovery. Certainly the worst looks behind it but a period of modest losses to see out the secular bear likely has greater merit here; perhaps an inverse as to what happened during the eighties and early nineties???

Enter to win the Trader's Business Plan prize of a free psych test and free access to the trading plan development program. Retail value $398

[1] Register at Zignals.
[2] Go to Charts and select a stock (you will be prompted to download Microsoft Silverlight)
[3] Click on the YourCall Icon


[4] Enter a Call by giving a stop and target price; make sure the Time Period is set to Short (month)
[5] Enter as many calls as you like up until the end of June; these can be long or short signals
[6] Send me your Zignals Userid so I can track the calls made (declan-at-zignals.com) or post it in the comments section of this post. In your email make reference to the competition.
[7] The Zignals member with the stock giving the highest return from either a target hit or expiration after 22 trading days will win the prize. Only stocks or FX prices listed on Zignals qualify for entry (no pink sheet stocks). The announcement of the prize winner will be made at the end of July.

Good luck!


Dr. Declan Fallon, Senior Market Technician, Zignals.com the free stock alerts, stock charts, watchlist, multi-currency portfolio manager and strategy builder website. Forex data available too.

 
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