Technical Talk: Uptrend is still intact

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The comments below come courtesy of John Murphy, technical analyst and author of a number of best-selling books on the topic.

A Friday stock bounce kept major stock indexes stuck in a two-month trading range. Prices also remain above their 50-day averages which keeps the intermediate uptrend intact. Prices, however, remain below long-term resistance barriers near 10,500 in the Dow, 1120 in the S&P 500, and 2200 in the Nasdaq Composite. Although not shown here, today’s unusually heavy trading is due to quarterly futures and options expiration as well as some index rebalancing. It has little forecasting value.

A modest pullback in the US dollar also provided some short-term relief to stocks and commodities. Gold and oil ETFS (GLD and USO) bounced off their 50- and 200-day moving averages respectively.

Stocks may also be benefiting from a favorable seasonal pattern. Not only is December a strong month seasonally, but a late-month bounce (known as the Santa Claus rally) may still lie ahead. That may not be enough to push stocks out of their trading range, but should be enough to prevent them from dropping much. Stock traders appear to be satisfied with protecting their 60% gains in 2009, and don’t appear in the mood for taking on new risks. That also argues for a trendless market through yearend.

Treasuries bonds and notes lost ground on fears that long-term rates are headed higher in the new year.

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Source: StockCharts Blogs – ChartWatchers, December 18, 2009.

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4 comments to Technical Talk: Uptrend is still intact

  • bklash

    Prieur, trust all is well. Any site that you recommend to help understand technical analysis? Has to be idiot-proof :-)

    Thanks.

  • bklash: I will strongly suggest John Murphy’s books, specifically “Technical analysis of the financial markets” and “The visual investor”. Both are available at Amazon.

  • Frank W

    This sidestepping movement under heavy overhead resistence is called “coiling” by many technicians. They see it as a gathering of power — like a spring being wound — and will end in the market strongly springing upward. According to Bennett Seddacca — these so-called “coiling” exercises inevitably end in the market falling off the side of a cliff. I have only seen one example of a successful unleashing of a coil. It occurred in a single sector. I myself saw four stocks do it simultaneously. This is to the best of my knowledge the only time in my life that I have ever observed a successful uncoiling.

  • bklash

    Prieur, thanks.

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