Instead of the Dow chart this week, I’m taking a look at the S&P 500 weekly chart for the past six months. The two charts are similar, but not exactly the same. I’m only going back six months this weekend instead of my normal yearly view because I drew so many lines that they became more confusing than beneficial.
The first indicator I noticed was that the S&P broke through the 10 week moving average for the past three weeks, but this week was the first time we closed below it. That’s not a good thing for us bulls. The trend line (starting in circle A) that was barely confirmed for a few weeks broke a three weeks ago too. We opened this past week above it, but that was short lived as the S&P fell to its high from mid-April (circle B) before rebounding slightly.
The potential trend line that began back in circle C might be our only hope of seeing a good new line being formed. That line has been close to the bottom for the past three weeks (circle D). My less than precise chart shows that we appear to have broken to the downside of that line briefly, but were able to close above it by the end of Friday.
Michael Santoli wrote in this week’s Barron’s, “Having risen 25% in value in the past year, the market could give back a good bit more before the broader uptrend is undermined.” My shorter chart this week doesn’t quite show the longer term trend line he may be referring too, but it does include the 50 week moving average currently moving up around 1400 (circle E). The S&P 500 would have to drop another 100 points to get there, but that’s only a little more than another 6.5% which doesn’t seem so bad considering the gains we’ve had for the past 12 months. With all other trend lines I could draw not being as clear as I’d like, the 50 week moving average might be the one to watch. By the time we get that low the average will have had time to move higher making the potential correction less severe.
Click on the thumbnail below for the full chart.
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I am poor with charts, so your explanation helps immensely. Also, makes sense for a month or two of S&P losses under circumstances. My wife and I are applying humor and faith to my current portfolio. One thing we discovered is that I have to keep straight my net account value versus total investment with margin. While my stocks were evenly divided, the percentages were higher if you take out margin. So I could have used more diversification. Oh well. MSN reported ENCY can give additional info to the FDA in July, with another decision in December. So the waiting game is on.
Cool on ENCY, that should help keep the premiums up there and let you get back to the land of profits sooner than you would have.