Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Perfect Setup for a Big Stock Market Correction

Stock-Markets / Stock Index Trading Oct 28, 2009 - 11:11 AM GMT

By: Claus_Vogt

Stock-Markets

Best Financial Markets Analysis ArticleSince there’s no holy grail to analyze financial markets, the best approach is an eclectic one. So I incorporate as many tools as possible in my analysis, including: Fundamental valuations, macroeconomic models, monetary and fiscal policies, interest rate developments, sentiment and momentum indicators, and chart analysis.


Major market turning points are usually characterized by many of these tools. That was clearly the case in 2007 when everything fell neatly into place to call the end of a bull market that had started in 2003.

Bull markets don't go  straight up. And this one is no exception.
Bull markets don’t go straight up. And this one is no exception.

To a somewhat lesser degree that has also been the case starting this June, signaling a medium-term up trend. And that’s why I still expect it to continue during the coming months.

But even the strongest bull markets aren’t one-way affairs. They’re often interrupted by short-term corrections typically lasting six to eight weeks with prices falling 10 percent to 15 percent. And right now I think such a correction has just begun.

Here’s why …

All Major U.S. Stock Market Indexes Are Bumping Against Important Resistance

These technical resistance points are important enough to warrant the beginning of the first large correction since this medium-term rally began in March 2009.

Let’s start with the S&P 500

As you can see on my first chart, this index hit the resistance line going back all the way to its October 2007 high.

Chart

Source: Bloomberg

This trend line is very significant, because it defines the bear market of 2007 to 2009 when the S&P 500 lost 57 percent. And I think it’s highly unlikely that this resistance line will be broken through on the very first try.

It’s much more likely that the market — which is already tired after the huge runup of the past months — will have to retreat from here to gather enough strength to overcome this technical hurdle.

Next, have a look at chart below of the Dow Jones Industrial Average

On a first glance you may think there isn’t any resistance below 11,000, especially if you only look back two or three years. But if you go back a bit further, to 2005 and 2004, you can see the massive resistance around the 10,000 area. This marks the lower boundary of a very massive trading range.

Chart

Source: Bloomberg

Next, the Nasdaq Composite

The Nasdaq has already reached the equivalent of 1,200 in the S&P or 11,000 in the Dow … the short-term bottom of 2008, before all hell broke loose. This is a very obvious resistance point.

Chart

Source: Bloomberg

Now, take a look at the Dow Jones Transportation Average

The Transports are showing a huge topping formation that began to form at the end of 2005 and lasted until fall 2008. When it broke to the down side, a crash wave ensued.

As you can see on the chart below, this index is now back to the lower boundary of that huge formation, a classic resistance area that’s not easily broken.

Chart

Source: Bloomberg

Finally, let’s examine the Dow Jones Utility Average

The Utilities have been relatively weak since their March low. But they, too, are bumping against resistance now. This index formed a very nice topping formation from 2006 to 2008, thus a bit shorter than its cousin, the Transportation Average. But the result when it was broken was the same: A market crash in 2008.

Chart

Source: Bloomberg

Even though this index has risen much less than the others, it has still entered a massive resistance area stemming from its trading range last fall.

Five Different Resistance Patterns

So here you have it. Five indexes showing very different chart patterns. But they’re all hitting major technical resistance areas at the same time! This makes for a very strong picture of a market that’ll have difficulties rising any further without a correction first.

In Fact, Other Technical Indicators Are Equally Weak …

The whole technical picture has become very fragile during the past weeks:

  • Volumes have been dismal: Declining when the market rose and rising when it retreated.
  • Momentum indicators show multiple negative divergences: They did not rise to new relative highs during the past three up-waves in the market.
  • Market breadth shows a similar picture: The ratio of advancing to declining stocks was lower at each of the past up-moves in the market.
  • Put-call-ratios were back to frothy levels: The equity only put-call-ratio fell to 0.52 a few days ago, a level often associated with short-term exhaustion.

All in all I get the impression that the first big correction of this medium-term up trend is already underway. I expect it to last until late November and bring prices back 10 percent to 15 percent.

However, I don’t expect this correction to herald a major trend change. Hence, I suggest you consider using it as a buying opportunity.

Best wishes,

Claus

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules