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Market Update & Chart Study

|Includes:AAPL, BAC, C, GMCR, GOOG, GRPN, Goldman Sachs Group Inc. (GS), IOO, JPM, LNKD, SPXU, WFC
Originally published November 12 2011

Tumultuous markets have been the norm for the past few months, and for most of the past few years.  As can be seen often on the front page of our website, the economic and political news is mixed as are "expert" opinions about how to interpret it and what to do about it.

We prefer to ignore that and take a step back to view the "big picture", literally, in the form of long-term charts.

Let's start with this weekly chart of the S&P500, below.  In 15 years there have been very few crosses of these lines, and none have been false signals.  The latest one could be negated eventually, but so far it has not been and history suggests it is unwise to ignore it.



Another chart relating to large-cap stocks is one we present often, updated below, for IOO.  That's the ETF representing the 100 largest stocks in the world by market capitalization.  All charts that follow can be clicked to download a larger version.

Here we see a 4-year downtrend intact (thick downward-sloping black line), the stock still below the 200-week moving average (in blue) and below historical resistance (thicker horizontal red line).  It's also below a downtrend started in early May of this year (thinner downward-sloping black line). 

In the first of the smaller panes at bottom, for momentum indicator MACD, we see it is mixed.  It's trading in a bullish alignment, but bearishly below the zero line.  In the bottom pane we see that momentum indicator RSI remains in a downtrend begun early this year.

IOO weekly - November 12 2011


Next we present the banking index, BKX.  The importance of the financial sector to the overall market can't be overstated, and it has been with the financials and specifically Goldman Sachs foremost in mind that we have been able to navigate this year's wild market swings as well as we have, starting with effectively calling the top back in May. 

Essentially the same observations apply to this key sector as applied to IOO above.

BKX - Banking Index weekly - November 12 2011


And what of Goldman Sachs stock?  Mixed.  It is bullishly above $100, but just barely so.  It last closed at $101.66 despite the massive market rally Thursday and Friday and despite the biggest October rally in market history.  It could consolidate above $100 and not revisit that level for years, decades, or perhaps ever.  Or it could be back below $100 for good within minutes of Monday's open.  It'll be interesting to keep an eye on it, but as always it'll serve as an excellent market barometer and will likely be leading or limiting the overall market. 

For now, with the banking index and GS both below their respective 200-week and 200-day moving averages, it's imprudent to be wildly bullish.

It's interesting to also note that despite the massive rallies recently the S&P500 index remains below its 200-day moving average and is just barely above its 2011 break-even level.  Perhaps surprising to many is the fact that the same is also true of the NASDAQ composite index.

The senior index, the Dow Jones Industrial Average (DJIA) is faring a bit better.  First we present the daily chart.  We see a 2.5-year uptrend (upward-sloping straight blue line) broken and now possibly being "kissed" good-bye.  We today note again the past much-discussed and obvious similarities to the "omen-ous" charts we've been presenting since May.  We see the 200-day moving average (undulating thin blue line) being virtually ignored lately, which is rare.  Soon the market should move steadily away from that 200-day moving average, but will that move be above or below it? 

Bullish is the fact that the DJIA is well above its 2011 break-even level, but it is bearish that other major indexes haven't confirmed this and it's also bearish that the "^Resistance^" red horizontal line lies directly above.  It is per this line and the blue 2.5-year uptrend that we expect resistance up to around DJIA 12300.  The MACD (1st small pane) appears to be topping, and the RSI (bottom small pane) remains in a multi-year downtrend.

 DJIA daily - November 12 2011


Below is the DJIA weekly view.  There are mixed signals here too.  The 200-week moving average remains intact while the 2.5-year uptrend is broken.  MACD could be said to be bullish in alignment however it's bearishly below the zero line.  The RSI is rising but remains in a nearly year-long downtrend.

DJIA weekly - November 12 2011


The price of copper is often a great economic indicator but it's relatively trendless while bearishly below $4.  Some famous high-flying stocks such as GMCR and NFLX have recently collapsed badly.  AAPL and IBM look good, but GOOG is barely above break-even for 2011 and LNKD and GRPN are below their IPO prices.  Precious metals are also giving uncertain and divergent signals, with gold trading above its October highs but silver trading below its October highs

It could be that all of the above resolve bullishly in the near future.  Another massive up day or two, like the past two trading sessions, could be all it takes.  If so, at that point bulls could breathe a bit easier, however the current technical picture suggests betting heavily on that bullish outcome is a statistically poor idea at present.