A quick note about the current market conditions.
I use the S&P 500 as the gauge for the “overall” market. While individual stocks march and move to their own rhythm this index shows the “big picture.”
One of the first and best things you can learn in technical analysis is identifying trends. Once you can successfully identify trends you are almost guaranteed to make money. Let’s take a look at the S&P 500…..
Notice the MACD indicator on the bottom of the chart, specifically the portions that are circled in red. Without getting into too many details of the MACD indicator in this post, take note of the black line in relation to the price of the S&P 500 above the MACD indicator. When the MACD indicator’s black line makes a higher low (lower peak) and the price of the S&P makes a higher high (higher peak), this is a sign of weakness in the overall trend and a reversal is imminent.
In mid March of 2012 the MACD indicator’s black line made a lower high (lower peak) from the previous high in February of 2012, while the price of the S&P 500 kept marching higher. Take note of how the S&P 500 fell sharply afterwards.
This brings us to today, in mid September of 2012 the MACD indicator’s black line made a higher high (higher peak), but a couple days ago made a lower high (lower peak). During that time period the price of the S&P 500 virtually stayed the same. This is an indicator of weakness in the trend.
I am looking for stocks to drop 10-15% from the most recent high on this pull back before purchasing stocks aggressively. This would put my target pullback at about 1326.
In the meantime I will be looking for discounts among the Dividend Kings along with scanning the markets for cheap businesses that I can effectively trade during this downturn.
Here’s to our wealth!