The above chart raises an interesting question: what exactly does a market bottom look like? In his book Profits in the Stock Market, Gartley outlines 7 different bottoms: head and shoulders, double, rounding, descending, triangle broadening and complex. There are two possible interpretations of the above chart. The first is a double bottom with the first bottom occurring at the end of last year and the second occurring recently in early March. Using this analysis the next question is "how much time can occur between the bottoms?" There is no firm rule here, although I don't think three months on a multi-year chart stretches the issue beyond credulity.
This bottom also has several features outlined in the book "Encyclopedia of Chart Patterns" by Bulkowski. There is at least a 10% rise between the bottoms, the volume under the second bottom is less than the volume under the first volume and there is less than a 4% difference between the lows in both (I'm eyeballing and using 25 and 26 as the price levels).
The other possible chart pattern is "complex" which is Gartley's way of saying, "this pattern doesn't fit into any other pattern on the books." However, after all the writing of the last two paragraphs, I'm leaning toward the double bottom formation.
The MACD is overbought at these levels, as is
The RSI
The 6 months chart has many bullish characteristics.
-- Prices are above all the SMAs
-- The shorter SMAs are above the longer SMAs
-- All the SMAs are moving higher
-- Prices have been advancing for about a month now
-- Prices have moved through key resistance established by connecting two recent highs
The problem is several important technical indicators indicate we are overbought. The MACD is particularly concerning at current levels. The RSI is less so because an RSI can stay at a 70+ reading for an extended period of time.
