Monday, 19 December 2011

Technical Indicators - Possible Market Bottom

After several straight days of large down days punctuated with only a couple of minor up days, the market looks set for a short term reversal.  While the momentum looks downward still, I would not rule a possible short term bottom.

Many of the technical indicators show stocks hitting their 200day moving averages and hitting the bottom of their trading channels.  This is consistent with a resistance point and may signal a potential bottom.

SPY does not show as strong of a bottom trend but it is hitting the bottom end of its channel.

More after the jump.

Examples of some additional stocks hitting the channel:

Note the bottom at ~$24.5 point.

IBM lower trend line at ~$182.5

F at bottom channel ~$10, note duplicate bottom on both rising lower trend and horizontal line.
Similar trend is found across multiple stocks which is consistent with a market bottom.  The key question is whether stocks will react to this and reverse or break through this support point.  A break through can be extremely significant as the support point becomes a resistance point and result in a large potential drop in the market.

Recommended strategy is to enter some long positions cautiously and continue to buy as market confirms the uptrend.  Another good strategy is to use some long options to leverage any increase.  

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