Stock Market Technical Analysis – Tech It Easy (thru May 24, 2013)

Stock market technical analysis is all you need to know, complete hogwash or somewhere in between.  It depends on who you ask.  If you find it interesting, you’ll probably like reading this weekly feature.

NOTE: You may be reading an outdated article.  Please visit my latest stock market technical analysis summary of the S&P 500 for more.

This is my standard intro to stock market technical analysis – you can skip down to the table (or click “continue reading”) if you read this feature regularly:

Many people who trade in the markets believe that there are patterns that can generally lead to profitable trades.  By analyzing stock charts that show the change in price along with the volume (how many shares were traded), “technical analysts” believe they have an edge and can time their trades profitably.  There is significant controversy over this subject, however.  Others say that, unless you have some information that no one else does, basically you can never beat “the market” because everything is already baked into the current price of a stock.

Nevertheless, supporters of stock market technical analysis are everywhere, and the tools for their trade can be found throughout bookstores and the Internet.  I like to follow some websites that do some of the work automatically and provide a snapshot opinion of whether a particular stock is considered “bullish” (going to go up in price), “bearish” (going to go down in price) or “neutral” (stay about the same price).

For simplicity, I’d like to start by showing you a snapshot of what several stock market technical analysis websites suggest about the exchange traded fund (ETF) with the ticker symbol of SPY.  This fund is supposed to go up and down the same as the S&P 500 index does.  And many people consider the S&P 500 index (a measure of the price of the 500 largest companies that trade in the U.S.) to be an accurate gauge of where “the market” stands.

For each of the sources below, where I have a choice, I will use a measure that attempts to predict the future direction of SPY or S&P 500 in the next 3 months.

S&P 500 Technical Analysis Summary

Source: Barchart.com   |   BULLISH

Quick ‘n Easy

Barchart.com uses three analyses to predict the direction of SPY over the next three months or so.  Looking at the average value and strength of these three signals, we can conclude that BarChart.com thinks that SPY is positioned to rise over the next three months.

Stock Market Technical Analysis - Barchart SPY Long Term Opinion May 24 2013

Source: BarChart.com

Easy Notes: BarChart.com says that SPY is positioned to rise over the next three months.  This is the 18th consecutive bullish assessment after 11 consecutive weeks at a non-bullish rating.  All three signals are at “buy,” and two of them are strong signals.  The not-so-good news is that all three signals are headed in the wrong direction (the right direction would mean “buy” signals are strengthening and “sell” signals are weakening).  Overall, this is clearly a bullish assessment.

According to this site’s stock market technical analysis, the current price of SPY is 65 percent of the way from “support” to “resistance.” (see below for definitions)  Thus, SPY should have a little bit easier time going down than up before meeting a barrier.

Additional Info

Support – It’s like a “floor” – a price where recent patterns have indicated that buyers will probably be more motivated than sellers, and so the price will likely not below that level.

Resistance – It’s like a “ceiling” – opposite of support – a price where sellers will likely be more motivated than buyers, and so the price will have a hard time rising above that level.


Source: CXOAdvisory.com   |   BULLISH

Quick ‘n Easy

CXO Advisory Group uses technical analysis to project the earnings from the S&P 500 companies as well as the expected inflation rate.  Using these two estimates, it provides a projection out to three months of the S&P 500 index.  It is projecting about a 2.25% rise by the end of July 2013, which translates to about a 12.7% annualized rate of growth.

Stock Market Technical Analysis - CXO Advisory Group Stock Market Projection May 24 2013

Source: CXOAdvisory.com

Easy Notes: CXO Advisory Group uses stock market technical analysis to project the earnings from the S&P 500 companies as well as the expected inflation rate.  Using these two estimates, it provides a projection out to about three months of the S&P 500 index.

The two most reliable models (REY-M and REY-L) for projecting 3-month movements project an average 2.25% gain from the current level by the end of July 2013, which translates to about a 12.7% annualized rate of growth.  That is above an average pace of growth.  This is the 17th consecutive bullish assessment after a 1-week pause from the previous 47 consecutive bullish ratings.

Additional Info

I will estimate the forecast annualized growth rate from the projection.  If it is 6 percent or higher, I’ll categorize as “bullish” – below zero will be “bearish” – and anything in between will be “neutral.”

Why does this source sometimes go against what the other stock market technical analysis sites are saying?  It’s because this model assumes that stocks should be valued at a certain price based on their estimated future earnings and the rate of inflation.  Wherever the current price is relative to that projected price is the amount it expects prices to change.  So, if stocks take a tumble, it just means they have that much higher left to go to reach the targets that CXO believes they will attain.  In contrast, when stocks rally strongly, it lowers the amount left to rally for the rest of the three month period.


Source: StockTA.com   |   BULLISH

Quick ‘n Easy

StockTA.com provides stock market technical analysis by analyzing numerous different technical indicators and combining them into a composite rating for either short, intermediate or long term.  We are focusing on the long-term, and right now it says that SPY (which tracks the S&P 500) has “bullish” prospects.  Expect the price of SPY to rise over the next three months.

Stock Market Technical Analysis - StockTA SPY Long Term Analysis May 24 2013

Source: StockTA.com

Easy Notes: StockTA.com provides its stock market technical analysis by analyzing numerous different technical indicators and combining them into a composite rating for either short (30 days), intermediate (60 days) or long term (120 days).  We are focusing on the long-term so it is as close to 3 months as possible.

The long-term is in “bullish” territory or better for the 23rd consecutive time after 9 consecutive weeks at a “neutral” rating.  Here is a rundown of the specific indicators that are on one extreme or the other:

Very Bullish Indicators

  • EMA – Exponential moving average analysis is a measure of the momentum of the price looking at the moving average but with more significance placed on recent prices.
  • Fibs – Fibonacci retracement looks at how much of a big move the price of SPY has retraced back.  There are certain percentages of retracement that show patterns of becoming a barrier to continued price movement – in other words, there are particular spots that can predictably cause the price to reverse.
  • Lows - The volume on which SPY has crossed certain low points has been favorable – meaning that it crossed those points with more volume on the way up than it did on the way down.
  • Trends – Calculates a best-fit straight line over the last 120 days.  If that line is sloped upward in a statistically significant way, this is bullish.

Very Bearish Indicators

  • MACD – Moving average convergence divergence indicator shows the relationship between two different moving averages of the price.

According to this site’s stock market technical analysis, the current price of SPY is 49 percent of the way from “support” to “resistance.” (see below for definitions)  Thus, SPY should have as easy a time going up as down from here before meeting a barrier.

Additional Info

Support - It’s like a “floor” – a price where recent patterns have indicated that buyers will probably be more motivated than sellers, and so the price will likely not below that level.

Resistance - It’s like a “ceiling” – opposite of support – a price where sellers will likely be more motivated than buyers, and so the price will have a hard time rising above that level.


Source: Price vs 200-day Moving Average from Finviz.com   |   BULLISH

Quick ‘n Easy

The price of SPY (which tracks the S&P 500 index) remains above the 200-day moving average – a bullish assessment.  Moving average is a good signal by which to judge the momentum of a stock’s price.  Finviz provides other stock market technical analysis tools, which right now show that SPY is in a “rising channel or channel up” pattern, which is probably better than the previously hypothesized “rising wedge” pattern.

Stock Market Technical Analysis - Finviz SPY May 24 2013

Source: Finviz.com

Easy Notes: SPY closed 12.12% above its 200-day moving average (versus 13.82% above for last week), which is generally considered a good sign.  This is the 27th consecutive bullish assessment.  Finviz has great stock market technical analysis tools, which I will expound upon a bit below.

Lines that represent barriers to movement:

  • Horizontal line acting as either support or resistance (around 145 level)
  • Trendline resistance (upward sloping purple line)
  • Trendline support (upward sloping blue line)

Patterns:

  • Channel Up – The upward sloping support (blue) and resistance (purple) lines are parallel.  The price will generally bounce around between these two lines as it moves upward over time.  Of course, it could break out of this channel pattern, as it looks like it may have tried recently and failed.
My Assessment of the Finviz Chart: What looked like a rising wedge pattern has now turned into a rising channel instead.  That’s good because odds of a break to the downside are now less.  It looks like SPY tried to break above the upper channel line, but it wasn’t able to do that successfully.

Additional Info

Moving Average – take the average of the closing price (last price of the day) of the last “X” number of trading days.  In this case, we used the last 200 trading days, which is a common time frame for analysis.

I will base the rating of this section purely on the 200-day moving average, not the other tools that I mention from the site.  Those will only be used for additional commentary.


Stock Market Technical Analysis Summaries – Additional Sources

Quick ‘n Easy

Several other sites provide an overview of the stock market technical analysis of SPY.  They don’t have a clear 3-month time horizon, so they aren’t included with the rest of the analyses above or in the calculation at the bottom of this page.  Overall, these analyses of SPY are indicating an average neutral stance (2 bullish – 1 neutral – 1 bearish) right now.

Below, I will mention a few other sites’ stock market technical analysis of where things stand with SPY or the S&P 500.  I don’t include these in my calculated average at the bottom of this page, however.  This is because these other sources don’t necessarily look at a 3-month time period for their forecasts.  But it’s nice to see what they are saying to get a sense for the consensus view.

Source: AmericanBulls.com   |   NEUTRAL   (Downgrade)   |   This site uses stock market technical analysis for the last few days of trading only, using the opening price, closing price and up/down movement of the day to make a prediction.  That information is translated into a series of “candlesticks” that technical analysts believe can show patterns that correlate with ups and downs.

SourceTradingMarkets.com   |   BULLISH   (Upgrade)  |   The “PowerRatings” system analyzes all kinds of quantitative data to forecast the price for the next 1-5 trading days, but it’s a proprietary method of stock market technical analysis (i.e., a “secret”).  It probably includes a lot of analyses that other sources on this page also use.

SourceStockSelector.com   |   BEARISH   (Downgrade)   |  “Sell” signal was issued last week.

SourceStockConsultant.com   |   BULLISH   (Upgrade)   |   The analysis shows strong money flow but also shows price at resistance.


Easy Take

The markets had a modest drop of 1.1 percent last week.  But no concern has crept into the technical analysis summary indicators I’m following just yet.  The CXO Advisory model very nearly became neutral last time around, as the expected gains through July had nearly all happened already, which leaves much less gain available for the next few weeks.  Keep an eye out on that analysis the next few weeks.  All four analyses stayed positive in assessing market prospects over the next three months.  We remain 100 percent bullish with the four main summaries.

Out of the four stock market technical analysis sources I’ve mentioned, we have 4 bullish, 0 neutral and 0 bearish.  If we were to average these using 3 points for “bullish”, 2 points for “neutral” and 1 point for “bearish,” we’d get an average of 3 out of 3 (versus 3 last week).  If we split the interval between 1 and 3 (which are the minimum and maximum we could get as an average) into three equal parts, that means the following:

1-1.666 = Bearish
1.667-2.333 = Neutral
2.334-3 = Bullish

Right now, the several indicators I’ve chosen to follow suggest a bullish outlook for the S&P 500 and, most likely, the market in general for the next 3 months.  This outlook was bullish last week.

The outlook shown above is based on what the stock market technical analysis sources themselves are predicting.  I have been examining the relationship between components of the analyses I’ve mentioned to the S&P 500 index over the subsequent 4 weeks or 13 weeks.  Based on that, I publish an Easynomics stock market forecast for the S&P 500.

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