Friday, October 9, 2009

Daily SPX market Commentary - end of the week - Inter-temporal Technical Analysis 10.09.09

**This is the WEEKLY chart - Long Term bullish or bearish?

On the surface the longer picture looks more bearish with a perfect bearish SMA formation (reverse bull perf formation). However one must consider the nature of long term charts and at the velocity they move. This is similar to the idea of secular bear markets. Longer terms charts maybe in downward trend, but can experience prolonged bear market rallies that last months or years. Being aware of time frame is key in inter temporal technical analysis.

So with this in mind, if RSI support at 50 holds, the SPX can have significant room to move up if it is indeed in a short term bull market rally (within a longer term bearish thesis).

*side note: in the past few days I have been discussing with my colleague, Pat, on the nature of "economic man" as an ideal type in the fundamental frame work for neo classical economics. The point is that a typical neo-classical framework will prove useless as a tool for analysis, at times, for a trader, during times of extended periods of irrationality (i.e. last summer with oil prices at 147, perhaps this bull market rally?)Economic analysis is limited in its explanatory power when it comes to financial markets interaction with social behavior. This point also extends to Quantitative financial modeling which is limited to its explanatory power since it also lacks the correct social fundamental framework.

Now the point of the side note is to explain the possibility of why price a range of 1200 to 1300 is possible. Partial Dow theory (ie the technical analysis I am using) + human irrationality (sentiment aspects) shows price movements that can reach such highs confirmed by RSI support at 50 with MACD trading around center line balance on default parameters. (one can back test this idea of "irrational" moves during bear markets/secular bear markets - open up a history book and some charts if you want to do this...).

So to summarize this Jargon up in simple concise terms:

My analysis shows a long term bearish picture out 3 quarters or so. The main supporting evidence for a longer term bearish picture is that the PERF SMA bearish formation is still in tack. However in the mid-term about two quarters out, the SPX can see strong bullish trends (this is supported by short price movements above the 50 SMA acting as short term support).

The biggest risk to a mid term bull thesis is that if fundamentals trump expectations and sentiment which would send the MACD well below center balance for a considerable amount of time. At this moment the MACD looks as if it will top out in 1 more quarter or so. To see if the MACD will remain around center line balance I will be watching RSI support closely. RSI support holding (bounces of 50 support) will need to be confirmed with higher highs and higher lows and daily chart perf SMA formations.

The inter-temporal contrast: The Short Term SPX:

The Short term confirms the mid term bullish thesis. <--- click here for short term analysis>

However, will give a brief summary of today's price action:

**This is the DAILY chart

Long Term Outlook - Bull or Bear?

As we see today, my call on 1070 was correct as yesterday highs hit 1070 and pulled back. However, today the 1070 resistance has been broken at the SPX closed at 1071.49. Next week will be huge with earnings from major names in the financial sector. If resistance has indeed broken, I will be looking for higher movements next week which would probably coincide with positive earnings reports. I am certainly getting MACD momentum reversal confirmation which makes good earnings seem more probably.

The next bullish pattern I will be looking for is a new lower low. So watch out for that pullback after earnings.

Also the main reason I am short term and mid term bull is because of the daily chart SMA perfect formation.

Outlook Summary:

1 comment:

  1. I like your outlook. I am in agreeance accept for midterm- I'm a bear 2/3.


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