A look at S&P 500 after a lonf time

Welcome back!

(Or should I say welcome me back?)

Yes dear readers, after a long pause I am here once again with my analysis and let me start with five year chart of S&P 500:

I have drawn two trendlines, the lower one is a possible medium to long term support line while the upper one is actual trendline that has been in the act for current uptrend. Traders should keep an eye on this line for this uptrend but once (and if) it is breached the lower one is very likely to provide support.

The 50 and 200 day simple moving averages (red and green lines respectively) confirm the uptrend but my worry is the gap between the two. The annotations 1,2 and 3 show whenever 50 day moving average is far above the 200 day moving average index is very likes to show correction. So, annotation 4, which shows this gap once again, makes it a possibility that there may be a correction due in near future.

One important thing to note is that RSI does not show any overbought signs and one can be comfortable with uptrend.

Volume (not shown) is steady and does not give any clue so I have not included it.

Now let me present my views on short term chart:

This three month chart of S&P 500 looks very interesting to me. Bulls are trying to make an attempt to conquer the last high that it made. If they succeed then we may see a further higher marks on this chart but looking at RSI and those short candles it seems bulls are getting tired and may take a little rest. A good strategy would be to short it here and look for support at the trendline I have drawn. This line shows support near 1840. As the medium term uptrend is intact one should not be greedy and book profits if it happens as I guessed.

Happy Trading...

The Week That Defied The Weak

Dear Readers,

This past week was an amazing week in terms of fundamentals and market direction almost all over the globe. The news and fundamental data that drive traders and investors who decide their trading decisions mainly on these things were not very strong yet the markets managed to rally significantly! Let me outline briefly some facts of last week :

In the US there was increasing unemployment data, declining retail sales, record high poverty level and despite all that the markets were up significantly (Dow about 700 points).

In Europe we don't even bother to look at the details, the troubles are ubiquitous. In addition, there was another rogue trader scandal and open secret that Greece is on the brink of default which would trigger further trouble for European Union. Despite that the markets in most of Europe rallied substantially.

In India the inflation data, both monthly and weekly, attempted double digits, before Friday the RBI was supposed to hike rates again and on Friday it did do that. Auto sales are declining, IIP data suggesting substantial downturn and declining value of Rupee putting pressure on imports (particularly oil). Despite all these things, the markets rallied.

What does all this mean? I have always believed that fundamentals do not drive markets and its the mass psychology that does. There is only one thing that matters and that is liquidity. If traders and investors have money and are willing to buy, then all such bearish news and fundamentals have no power to stop them. Similar thing happens but on opposite way if traders and investors are pessimistic. Then even the best of the data is unable to make them buy. This is the reason I suggest looking at Technical Data rather than fundamental data for trading.

The Appealing Chart

Dear Readers,

Here is one interesting chart which in my opinion is appealing as it incorporates some data important for all technical traders. This is the long term monthly chart of Nifty (NSE Nifty 50) since 2002.

Nifty Monthly Chart from 2002 to Aug 2011 Log Scale

The chart shows us following things which can be the deciding factor for serious traders:

• The trendline from 2008 low to the recent low of June 2011 was violated this month and Nifty is below that line for all of this month so far. 
• This low also broke down below 50 SMA (monthly) but is just above that now.
• This low is also near the support level of the low of May 2010.
• The RSI is trending down and has broken down the 50 level. This breach of 50 level was not seen anywhere since the 'recovery' started in late 2008.
• The MACD on this monthly chart had already given sell signal in Feb-March this year. Kindly note that MACD signal on monthly charts is very reliable as seen in the past.

So, the market is at some important price point and case for bulls and bears is 40:60 respectively. The close of this month is going to be important for bulls as bears are having upper hand so far. The problem bears encounter is lack of volume at such an important point but then the month has several trading days ahead for one thing and for another thing, volume is not 'extremely' important for bears as stocks can fall off their own weight.

The long term trendline from late 2003 low, joining late 2008 low and extended, gives an idea that next support (if bears have an upper hand) is going to be near 3800 on Nifty which looks yummy to bears but scary to bulls.

There is one more thing that needs attention although some of you might discard it as trivial but in my opinion this is important. RIL (Reliance Industries Limited) has been the king of this market since the start. Note that RIL started going down first and then the rest of the market followed suit. Also, RIL lost its 'most valued firm' status last week (although briefly) which symbolically looks important.

The bottomline is:

At this point there may be people buying, but if Nifty continues going down from here, then there is the possibility that we may see even 3800 ish level on Nifty.

Happy Trading...