Passing The Bottom Of The Stock Market?
April 20, 2009 by Vagabond Investors · Leave a Comment
Have we finally seen the bottom of the stock market? We will know better by the end of this earning season. If the news continue to get worse, but the stock market refuses to make new lows, we will clearly see the foundation of a solid bottom.
So, if you are investing for the long term and you are not interested in the movement of the following months, by all means by the index and close your eyes for six months or so. Your investment could very well deliver its promise on a long time perspective.
As we look at the charts on a weekly basis, we clearly see how the price has moved from a significantly under-valued zone to the value zone. Note that the MACD histogram, which expresses the power of the uptrend, has reached a 10 year high! This tells how the market has been wildly optimistic and willing to buy. However, the wilder the party becomes, the more likely it is that there will be a hangover. It is very possible to see the index take some breath on the following weeks. It would be a healthy to retreat to around 740 points in order to gather strength to a new marvelous rally.
The daily chart shows how the index bounced from the bottom to tingle the upper level of the channel. In order to create a positive mood for the future, the bounce would have to reach the significant level around 870 and close above it. At present, the index is clearly above the value zone, where it tends to retreat to gather momentum. The rallies of the past days have not reached new short term highs.
Even the MACD histogram, which measures the power of previous power, has failed to make new highs. Instead it has fallen whenever there is a higher new high compared to the previous ones. This simply means the deceleration of the rising power. The struggle of the upcoming weeks shall be seen between 740 and 870. The result of that will show if there is basis for further bounce. Patience in timing purchases is no sign of being a sissy. It is simply sensible thinking.
It strongly seems that the longer trend is changing, but we could experience violent volatility during the upcoming weeks when new earnings are announced and the market gathers strength on slightly lower levels. If you are a short term trader, keep your stops tight and practice very prudent risk management.
The ride will be bumpy and it will offer tickly opportunities both on the short and long side. If you are planning a long term investment, it is desirable to make multiple enters to the market over time as this strategy will calm the mind.
I wish you pleasant investing. As always, let’s plan our moves carefully before we do anything.
Best,
Matias
