Stock Market Technical Analysis – Tech It Easy (thru December 13, 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NOTE: You may be reading an outdated article.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 will rise in price over the next three months.

Stock Market Technical Analysis - Barchart SPY Long Term Opinion December 13 2013

Source: BarChart.com

Easy Notes: BarChart.com says that SPY will probably rise in price over the next three months.  This is the 9th consecutive bullish assessment after 9 consecutive weeks at a non-bullish rating.  Two of three signals are at “buy,” and only one of them is better-than-average strength.  Unfortunately, two of 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 barely a bullish assessment.

According to this site’s stock market technical analysis, the current price of SPY is 46 percent of the way from “support” to “resistance.” (see below for definitions)  Thus, SPY should have an easy time going down or 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 7.2% rise by the end of February 2014, which translates to about a 39.1% annualized rate of growth.

Stock Market Technical Analysis - CXO Advisory Group Stock Market Projection December 13 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 7.2% gain from the current level by the end of February 2014, which translates to about a 39.1% annualized rate of growth.  That is a blistering pace, well above the average rate of growth.  This is the 7th consecutive “bullish” rating after 1 week at a “neutral” rating.

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 “very bullish” prospects.  Expect the price of SPY to rise over the next three months.

Stock Market Technical Analysis - StockTA SPY Long Term Analysis December 13 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 “bullish” or better for the 6th consecutive week after 10 consecutive weeks at a “non-bullish” 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.
  • MACD – Moving average convergence divergence indicator shows the relationship between two different moving averages of the price.
  • 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.

Very Bearish Indicators

  • None

According to this site’s stock market technical analysis, the current price of SPY is 41 percent of the way from “support” to “resistance.” (see below for definitions)  Thus, SPY should have an easy time going down or 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: 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 back inside its rising channel – we must wait to see which side of the channel it will test first.

Stock Market Technical Analysis - Finviz SPY December 13 2013

Source: Finviz.com

Easy Notes: SPY closed 7.60% above its 200-day moving average (versus 9.85% above for last week), which is generally considered a good sign.  This is the 53rd 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 both resistance and support (near 165)
  • Trendline resistance (upward sloping purple line)
  • Trendline support (upward sloping blue line)

Patterns:

  • Channel Up – The rising resistance and support line are parallel, forming a channel that allows the price to bounce up and down between them, but generally the price movement is upward because the channel is pointed upward.
My Assessment of the Finviz Chart: The price looks like it never really broke above the top of the rising channel and is now back inside the channel again.  We will simply have to wait and see if it will rise up or fall down to test either side of the channel.  At least it’s a rising channel, which obviously favors a more bullish track overall.

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 (1 bullish – 3 neutral – 0 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 vs 3 weeks ago)   |   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 vs 3 weeks ago)  |   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   |   NEUTRAL   |  No signal was issued last week.

SourceStockConsultant.com   |   NEUTRAL   (Downgrade vs 3 weeks ago)   |   The analysis shows bearish moneyflow, but the price is resting on support.


Easy Take

The S&P 500 dropped considerably on the week by 1.65 percent, its second consecutive weekly loss (although last week’s was virtually unchanged).  But that drop wasn’t enough to spook any of the four main analyses.  We’re 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 one week ago).  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 one week ago.

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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