Stock-Market-Observations

During August I will post updates of the daily Short Range T (SRT) chart on Mondays in order to keep up with the market volatility.

August 27 2007 SRT and Envelope Update–

As per last weeks observation the S&P has rallied above the 200 Day MA to the normal upside resistance at the 55 day MA. Current values are given in the updated Short Term Chart which can be downloaded below. The current 55 DAY MA has come down to 1481 vs Friday’s closing value of 1479. Normally the 55 Day MA provides upside resistance as it did in the recent past so some sort of correction or hesitation from here would be expected.

But generally the outlook for the current Short Range T is improving relative to its projected right end date of November. It is unusual to see a bullish type of T make a full correction of its initial advance, but by holding at its prior center post low, the T still can finish out its normal requirement that the S&P reach an higher high come late Fall.

There are only two key requirements that need to be full filled for this bullish scenario to stay on track. First, any near term correction caused by resistance at the 55 Day MA must hold above the 200 Day MA. Second, once the S&P breaks above the 55 Day MA, no correction should bring it below the 55 Day back center line in the chart.

The August 20 2007 SRT and Envelope Update

During last week the S&P broken down in a way that is not consistent with a typical bull market correction as suggested by the 10 year history posted on August 6th. The major observation that needs to be made on the current rebound is whether the 200 day MA, the red line in that chart, will act as upside resistance and by year end be in a down trend. It would then be suggesting a long term bear market beginning from a double top in the S&P 500 relative to the key 2000 peak. Specifically 1553 for 2000 vs 1556 for 2007.

On a shorter term basis in the daily chart above, the normal expectation is for a rebound higher than the 200 Day MA (1441) to the 55 day MA (1485) on Friday. The critical issue to be settled relative soon is where the bull market remains intact for now. The best outcome would be if the S&P can get above the 200 day MA and stay above it thereby returning the trend to at least a trading range as per 2000. The worst outcome is that either the S&P can not reach the 55 day MA and turns down, or it just reaches the 55 Day MA and then turns down much as it did about 8 days ago.The issue could be decided this week.

The August 13 2007 SRT and Envelope Update:

Over the last week we have seen exceptionally and confusing volatility based largely on the mortgage securities problem, but the wild swings did honor the two key envelope levels at the 55 day MA for a top after the early rally last week and the 200 day MA of the S&P for the correction low into last Friday, where we now stand.

Before moving on I want to say that the ability of the three channel bounds that are shown in the daily PDF chart below, which you can download, can be thought of as the three basic “quantum states” for the equity market’s S&P 500. That is the market can be assumed to be very volatile but only within the a natural tendency to produce turning points at one of the three levels shown in the chart by the red, green, and black levels. These only need to be updated weekly because they are slow moving and actually not exact. The additional 200 day MA is also key to the very long term 10 year picture which I posted last week and you can refer to this as part of the T Theory forecast for this update.

To illustrate, when the market fell sharply on August 3 and landed on the 200 day MA one would have expected a bounce up to the 55 day MA which in last weeks daily chart was around the S&P 1501 level. On Wednesday the S&P reached this level and closed up looking positive. But the next morning, reports of further mortgage securities problems put the market down from the start and eventually into a climatic Dow 380 point decline.

Once returning to the 200 day MA and stabilizing after a small penetration on last Friday we find ourselves again saying if the basing at the 200 Day MA holds further corrections, then the market will eventually try for the 55 day MA once again. If you look at the ten year chart, say during the year 2000, then you can see once the 40 week MA acts as persistent support to successive selling waves, then eventually the S&P is driven back up to its old highs.

August 6 Update:

I have provided a 10 year history of the S&P 500 on a weekly basis with its 40 week MA as a timing tool and a few notes in the chart that I will elaborate on during the month. Download the longer term PDF file below for this import bottom criteria.

The main point is that when the trend is rising, all important low points along the up trend, develop when the S&P drops just a bit below the 40 Week MA shown here as the thin red line. The only serious exception are the well known periodic 4 Year Cycle lows I have noted and aren’t presently significant to our time period. The point is that the S&P on Friday closed just below the 40 week MA (1451) so a bottom is expected over the next few days.

Also note in the middle of the chart that I have calculated from my daily data with an exponential moving average of 200 days. This should be equivalent to 40 Weeks since 40 times 5 = 200 market days. However my data sees the 200 day MA 10 points lower at 1441. I like my numbers for reference but prefer the 10 year chart for perspective and lessons on how to find lows, etc.

The next file is my basic daily SRT and envelop chart. Note the 200 day is provided each week and is the important reference we need to watch. Buy points or bottoms are confirmed by a rising bottoms volume oscillator pattern at the 200 Day MA.

We seem to be in good shape here so I would look for a bounce up to the 55 day MA mid channel line then perhaps a retest of the 200 day MA to expand the strength of the eventual correction low.

Terry Laundry