7/20/2009

Long-term trendline analysis

I've learned a lot from Atilla's xTrends blog, including trendline analysis. Here is my attempt at some longer-term analysis which further supports the notion that current market action is just a bear market rally.

As you can see from the above weekly SPX chart, there is a very long-term trendline which has been controlling price very effectively. Given that we're testing the underside of this line, risk-reward favors the bears.

The daily DJI chart above shows a decade-long channel that has been controlling price action. Once again, we broke through this channel and are now retesting the underside. We've only seen a muted reaction from restesting this trendline, thus far. I find it hard to believe that we break back into this channel on the first try.

Given how strong the market has been, however, it makes sense to consider a mildly bullish scenario that holds within the broader picture. In the COMPX chart above, there is the possibility that we could have an ending diagonal forming. This is in line with the charts above, because price would be hugging the trendline vs. breaking above. Also, it would set up the stage for a very sharp decline later on. Best of all, it would burn out the remaining bears in a slow upward grind, creating the sentiment extremes for a top.

8 comments:

Ticker Street said...

Namaste Narayana Anna!

The problem with this market is, the PPT is pushing the futures every night. That is something that wasn't there in 2002 or bear markets before.

johnboy said...

Good post. Well done.
(JB3 on xTrends)

Kishore said...

As the dollar is going down due to hyper-printing, the market is going up due to fears of hyper-inflation. This is the biggest danger in shorting the stock market at this time, besides interventions to plunges by the PPT.

I am not clear if and when the stock market will start going down despite trashing of the dollar. Anyone?? Thanks!

mrstock said...

Top chart. The trend line looks totally spurious and misleading.

Narayana said...

Mrstock: how do you justify that statement? What's misleading about it?

Anonymous said...

Should we just ignore the MACD on the MONTHLY spx chart?
IN no way am I a bull, but it's a point of concern for bears.

Narayana said...

Good point, anon, but it could be setting up for a nice bullish divergence if price makes a lower low.

Ticker Street said...

A closer look at your chart should show that there is a bullish cross on the MACD. Check what happened when there was a bullish cross last time.