See below, charts of S&P 500 index and some stocks that now show breakouts to the upside, all in the Services Sector of the Resorts and Casinos Industry, MPEL, LVS, MGM, WYNN — These may be suitable for our Stock Market Basics Paper Trading Portfolio # 3.

We are not “out of the woods” just yet, but the stock chart of the S&P 500 index is beginning to look promising and although the continuation of a downward correction could resume, it seems just as likely that we have bottomed out – always a dangerous thing to suggest, I know.

The charts and the market teases us almost every week with indications that the current downtrend is about to be reversed, only to have hopes dashed a few days later, not because of poor stock results, but because of the uncertainties of the international monetary worries over a bailout of Greece that the populace will not go along with — and there is too, unrest in the middle east and the U.S. debt ceiling and budgetary impasse to factor in. But tomorrow, June 29, the Greek parliament votes on the adoption of the bailout conditions and if those are passed I imagine a big sigh of relief will be heard from Wall Street.

Major positive factor to initiate the next round of buying stocks
Earnings still are the primary force that drives the markets and the new earnings announcements season will soon be here when Alcoa (AA) announces on July 11 and as of now, expectations are that there will be many very positive declarations of earnings and positive forecasts for the rest of the year – so, if the other uncertainties mentioned above can be resolved satisfactorily the market for traders looks promising.

This Stock Market Basics website is primarily meant for beginners who wish to learn about trading stocks, so if anyone is not sure what “Earnings Season” refers to, check Earnings Season Explained. If you wish to know when earnings will be announced for a specific stock of interest, it can be found by entering the stock symbol at top left where indicated in this Earnings Calendar.

The proposed stock paper trading portfolio
For a couple of months or more, before the sequence of geopolitical and natural disasters occurred that added a negative impact to an already overbought market due for a minor correction, we were ready to start paper trading and buying stocks for a proposed portfolio to see whether we could successfully trade with a modest amount of start-up capital of $10,000 or less.

However, we awaited the required a signal (that did not come) from the market to commence paper trading for the proposed Stock Market Basics Portfolio No. 3 in accordance with our established safety guidelines to protect capital. Now, if we do soon get the “green light” to start buying stocks it may come as somewhat anti-climatic.

It will probably be necessary to re-populate our watch list originally assembled in late April, so meanwhile, to give us something new to watch, let us consider buying stocks charted below, by paper trading of course. They are all in the same sector and each one is showing us the type of break out from resistance that we like to see. Can you see that? If action in the next few days can confirm those breakout signals by trading and closing at higher highs on good volume we will then feel confident enough to place trades.

Click on the charts to obtain a slightly larger and sharper view

Chart of S&P 500 June 28

Chart of MPEL June 28

Chart of LVS June 28

Chart of MGM June 28

Chart of WYNN June 28

See the S&P 500 Index Charts below.

After 4 consecutive up days in the market, we have today seen another reversal to the downside, it is a small reversal, triggered by continued uncertainties of events both abroad and on the home front. From Europe there are doubts about the bailout of Greece, even though Greek PM George Papandreou did receive a vote of confidence in their parliament yesterday and it seems certain that bail out funds will be made available almost immediately — its the longer term that causes worries because continued support depends on whether further unpopular austerity measures are adopted. Also, in the U.S., Fed chairman Bernanke did not hold out much encouragement in saying today that the economy still faced headwinds and the current higher energy prices have prompted  the Federal Reserve to cut its growth forecast for the US economy.

But that’s the way it is, few of the poor performances of the last 3 months are are based on the fundamental qualities of the individual stocks themselves but have occurred mainly because of the seemingly unending series of economic and geopolitical factors plus some serious natural disasters — tornadoes, floods, fires, and a very big earthquake, tsunami, and nuclear near meltdown in Japan. Market watchers understand what’s happening, and late today we have reports of another earthquake in the far east.

But we at Stock Market Basics like to look at the charts no matter what is happening so let’s check out the favorite S&P 500 chart as of the market close today just so we can focus on some moving averages that would, I think, portray interesting possibilities and a near signal for entry if these were more settled and stable times.

Note: Click on the chart for slight enlargement and a sharper view:

S&P 500 Chart June 22

And an enlargement to provide a closer look at the lines of the moving averages, down in the lower right hand corner:

S&P 500 Chart June 22 -- detail

The blue line is the 5-Day moving average, the red line is the 10-day and the green line is the 20 day moving average.

The different moving averages serve various purposes for chart readers — and we acknowledge that chart interpretation is a very inexact way of determining the future but, on the other hand, there are some apparent signals triggered, from time-to-time, by the normal everyday fluctuations in the marketplace that are difficult to ignore if you know what to look for.

An objective of this stock market basics site is to encourage anyone new to trading and wishing to learn the basics, to look at a few charts as often as possible and become accustomed to recognizing patterns that repeatedly occur as they chart the action of the prior trading days. Know what to look for and check later to see whether subsequent trading action bears out the possible developing scenarios that the charts seem to portray.

So what might be of interest, even if no action is indicated?

1. Trading today could not overcome resistance indicated by the green 20-day moving average — we would be looking at different possibilities if it had. The 20 day moving average is regarded as one of the most important resistance/support lines, sometimes harder to break through — which is what a stock must do, to the upside, to  have any chance of being a candidate for entering into a long trade or to the downside for a short trade..

2. We have an interesting crossover of the blue line over the red line, that’s the 5 day crossing over the 10 day, the type of thing we look for — often a signal that forecasts a reversal in trend, in this case it would, if sustained, indicate a move to the upside — just what we want — but it is far too early yet, but keep watching!

3. The chart at the bottom, the MACD (Moving average convergence-divergence) is also showing the beginnings of a positive crossover to the upside, a promising confirmation perhaps, we will have to wait and see where we are in a week’s time

4. Volume: No real significance in current volume, it is in about the same range as the average for the last 52 weeks. For traders, what we always like to see when there is a tradeable move in either direction, is that it be accompanied by increased volume.

From this point, as of June 22nd, we continue to wait, knowing that the expected positive influence of earnings season will show up shortly — and it’s earnings that drive the markets. The trader typically hopes the earnings will set the stage for an upswing to, optimistically, at least around the 1450 level by the end of the year. Wouldn’t that be a nice compensation for this recent long wait?

A somewhat contrarian outlook compared with what the charts are currently showing (see S&P 500 below)

Will the market continue on a downward path? I don’t think the evidence shows that it will, not yet anyway, in spite of the abundance of bad financial news from the Eurozone and the uncertainty regarding the problems faced by Greece. The market does not like uncertainty and there is also plenty of uncertainty over the Middle East, inflation in China and arguments over the debt ceiling in the U.S.

But the markets are very much oversold, the Congress has to act on the debt within the next 10 days, and that’s also about when we begin the next season of earnings announcements with the expectations of good gains and performance forecasts for the rest of the year. When all is said and done, it’s earnings that drive the market. Perhaps that will be enough to turn the tide, all is not lost.

A look at the S&P 500 chart below, continues to provide a disappointing outlook for those of us traders, paper traders that is, who are waiting to implement the stock Market Basics Portfolio # 3 — that we’ve hyped for the last couple of months.

Effectively, we are winning, we made the right move to stay on the sidelines However, our “house rules” have kept us safely on the sideline, as we have pointed out in previous posts, and in that regard we must consider it a success because for the beginner wishing to learn the stock market basics and starting out with relatively small working capital, to whom this website is addressed, it is paramount to learn how to minimize risk and protect the trading stake.

I suspect that many of the small traders who stayed active since the beginning of May will be showing a loss while we at stock market basics, anxious to trade as we are, are keeping our powder dry, standing on the sidelines, waiting for that signal that the market itself will give us  — if we read the charts correctly. That is not to say that the bigger traders, the professional traders, are not doing well, they are, but they follow many other complex strategies unlike those used by the entry level neophytes like us at Stock Market Basics.

Things can change fast, both ways, for instance, it was about a week ago that I commented that almost every one of the 17 stocks on our watch list (discussed and illustrated here) were showing losses, today on June 20 with half hour before the close, 75% are showing gains. This is the third consecutive day of gains as it stands right now but the problem is that the volume is too low, showing little enthusiasm on the part of the major players, the funds and institutions that provide more than 80% of all trading. We must continue to wait for the confirmed signal to enter on a breakout to the upside — or to go short to the downside, no need to jump the gun just yet, patience becomes a virtue in market situations like this. End of sermon.

Click on the chart to enlarge slightly for a better view:

S&P 500 June 20, 3 pm

Note: Click on the charts to obtain a slightly larger and sharper image

S&P 500 June 12 - 6 months

Not what we want but technically, but we did the right thing regarding a market entry, we stayed on the sidelines, waiting for the right signal that is yet to come

Look at the S&P 500 chart above, our favorite stock index, it does show a sorry picture with a firm downtrend heading towards and closing in on the March 2011 lows – but before we give up and abandon all hope let us just also take a look at the chart of the past 3 years to keep things in perspective – sure, right now the market is in a downturn and heading lower by the looks of it but compared with where we were in March of 2009, we’ve done well — although the pessimists might say that’s how far further there is to fall. So here’s the chart that shows the longer time action:

S&P 500 June 12- 3 years

On the positive side, I believe the market is oversold and that most sectors are still under accumulation – meaning the asking price in trades is being met more often than the usual lower bids being accepted.

Right now, in early June of 2011, we at stock market basics are doing the hardest thing for traders, we are sitting on the side lines and waiting instead of trading. Sure we want to see some action but the purpose of this stock  market basics site is to olearn how to do it right, even if we are taking a stock market 101 approach. We are playing safe by obeying a set of simple guidelines that are meant to minimize the risks of buying stocks as much as possible. And I suspect that most of the amateur traders, like those that stock market basics is directed at, are losing money or “under water” on paper if they are actively trading right now. At this tme, I believe, it is generally neither smart to trade on the long side or the short side, although I know that the more knowledgeable traders can always find something in which to take a position.

For a couple of months now, we’ve repeatedly expressed here on this website our desire to open up the Stock Market Basics Portfolio Number 3, but following the discipline established by our “house rules” we have refrained from doing so while awaiting that breakout signal that almost came 2 weeks ago around 1344 -1350, but it did not quite make it. So let us think about that, our watch list tells the story, only one of the 17 stocks on the list is showing a profit – if we had jumped into the market we would now be very sorry, even if these are only paper trades that we are trying to follow for learning purposes, the primary objective of this website.

I think that shows the value of following the guidelines.