Before we get started—if you live near Brantford, Ontario, come out and join us tomorrow at the Brantford Public Library: Thursday October 9th, 2014. 7:00PM. Technical analysis concepts from the book Sideways are discussed – come out and join the discussion!
With recent bearish activity on the stock market, investors might be forgiven for wondering if the good times are over. After all, we’ve got:
- Troubles in the middle east and Russia
- The tapering of QE (our favorite market-driving drug) and eventual tightening
- European weakness is accelerating
- A potential economic impact of Ebola
As always, I turn to the charts to see what the real story is going to be. I’ll focus on the S&P 500. Readers might want to revisit my “Pop quiz” blog for a step-by-step guide on how I normally look at a chart https://www.valuetrend.ca/?p=3200
Here are the highlights of my observations:
- Big picture: daily chart trendline broken, but market remains above its last low (recall that an uptrend means higher highs, and higher lows—trend is intact until a low is taken out). Weekly chart trend line is intact (not shown)
- Closer observation shows support at the orange horizontal line (1930), but the last low was at the lower pink line (1900)
- Bottom pane is longer termed cumulative moneyflow. It’s still bullish, although pulling back a bit. Flow of funds is positive. Recent moneyflow can be seen on the top pane—its negative. The big picture bottom pane is more important to investors, vs. traders.
- Quicker momentum indicators stochastics and RSI are heading down- no hook up yet
- MACD, the longer termed momentum study, is heading down, but the histogram is showing some positive action
- Seasonal negative period ends around mid-October—despite the traditional “buy period” for stocks starting in early November. Most of the negativity should be over in the next week or so, according to such studies.
- Smart money/dumb money flow is neutral
- As I write–we’re getting another intra-day reversal (like last Thursday’s Key Reversal pattern). This can be bullish–its encouraging. But it can be a wild ride on such days. What a mind-tease!
Watch for 1900 as an important point of support–that must hold. Meanwhile, the current period of weakness is presenting buying opportunities. We’ve been legging in a bit at a time on specific stocks. We still have some cash—and will buy the bargains as they appear. Watch for rebounds from support per the levels above (like we got today), and you will come out of this correction smelling like roses!!
It’s interesting to see how frequently history repeats itself. September is known as the worst month of the year, and proved to be negative this year. October is known to be the most valatile month, and it seems to hold true again.
I’m hoping that Mid-October to May tendencies will repeat itself for the best 6 months