Monday, August 11, 2008
Let's start with a really long-term look at the market -- a 5 year look. This will give us an indication of where we are in the bull/bear cycle.
The market started to rally in 2004. It maintained an upward sloping channel until the beginning of 2007 when it broke through the upper trend line. The market used the upper trend line for technical support all during 2007. In addition, the market formed a double top in 2007, with the first top occurring at the beginning of the third quarter and the second top occurring at the beginning of the third quarter. This was also when we started to hear about problems in the financial sector (which started with news that Bear Stearns hedge funds were losing big sums of money). As a result, the market started to drop.
Since the market top in 2007, notice the following:
-- Prices have moved through upward sloping trend lines
-- Prices are now below the 200 week SMA
-- The 10 week SMA has crossed below the 200 week SMA
-- The 20 week SMA is about to cross over the 200 week SMA
-- With the exception of the 200 week SMA, the shorter SMAs are below the longer SMAs, and
-- All the SMAs are headed lower
In other words, the long term picture is bearish. The only good news on this chart is the 200 week SMA is positive.
Above is a two year chart. I put this chart up without any indicators to clearly demonstrate the market is in a clear down up down trading pattern.
On the daily chart, notice the following:
-- Prices have been in an uptrend since early July
-- The 10 and 20 day SMA are both positive
-- Prices are clearly looking for move higher.
-- The 20 and 200 day SMA are heading lower, indicating the longer-term trend is down.
Placing all of these charts together we get the following picture emerging.
The long-term trend is down and has been for awhile. The market is in a clear lower low/lower high pattern.
The shorter term trend is for a rally, which means this is most likely a bear market rally.