S&P 500 Chart March 12, 2011

Click anywhere on the above chart to view an enlarged version

We have not looked at charts for some time so now might be a good time to do so. Especially because of the recent stock market action affected by the unsettling geopolitical activity in the middle east that has in turn created a big rise in the price of oil — independently of the availability of crude that appears be in good supply.

But the market IS affected so we have to deal with it.

Minor correction
The current minor correction, if that is what it is, was probably overdue anyway and it will be good to get beyond it, if that is what is going to happen, and we can then continue the upward trend which has just achieved a 2 year span since the last market bottom. The periodic reversals are part of the long-term pattern in stock movement but, as always, the speculator must stay alert for trouble while at the same time seeking opportunities to pick up some good issues and take advantages of the buying opportunities presented by this current fall back. At least add them to the watch list.

The chart above shows the S&P 500 up to the close of trading on Friday March 11, 2011. The S&P is a good representation of the overall market because of the mix of stocks covered and is favored by many traders over charts of the DOW or the Nasdaq.

Earnings season can boost the market
In about 3 weeks time, earnings season will be here. In the long run it is earnings that drive the market and good earnings results lead to success. Some pundits are already suggesting a great earnings season that will boost the market higher — so we must find the stocks that benefit from that.  Check for those stocks that may have fallen with the market of late and be waiting and ready to reload, or start now to accumulate. At least get them on the watch list.

Watch the 50 dma
The chart shows an interrupted upward trend of the S&P, nothing alarming at this point but we will be carefully watching the 50 day moving average (the blue line shown on the chart) to see whether that level is breached. Volume is about the same or just slightly less than for the last months since the start of the year. The current reversal looks much like the previous one that started November 8, 2010 that lasted a few weeks, as illustrated by the MACD graph below the main chart and shows what typically can happen.

But the recent turmoil in the middle east that has significantly pushed up the price of oil – even though there appears to an ample supply of oil available to meet the current demand — adds uncertainty and the market may begin to hesitate, especially on the heels of the added tsunami catastrophe and nuclear problems posed by the partial meltdown there. But we will have to wait and see.

The support at around the 1300 level is being tested and selling pressure that may now follow the news from Japan could cause a breach of the support and a move below 1300 would confirm a correction taking place.

The RSI (Relative Strength Index), a momentum indicator shown at the top of the main chart body, reflects the reversal and appears to be about midway between being oversold and overbought so there is plenty of room for recovery there.

Stock charts –  part of the stock market basics learning process
Not being a chart technician myself, I don’t pay much attention to every detail they depict but I do find them helpful and would never make a stock purchase without consulting its chart. I have found that certain patterns of stock movement can often signal a promising entry point and some recognizable patterns of stock price changes have a good record of success. Not always the case but often, the traders need every edge they can find.

For that reason I urge the newcomer wishing to learn the stock market basics to learn about stock charts. Many well known authors writing for the beginning stock trader recommend their study and use, my favorite author being William J. O’Neil, trader, founder, and publisher of the Investor’s Business Daily (IBD), another useful information and advice source for the stock market basics beginner.

Related posts:

  1. Update of the S&P 500 Chart for March 25, 2011
  2. Update of the S&P 500 Chart for March 19, 2011
  3. What the S&P 500 Chart Shows as of May 27, 2011 and a Review of New Trading Candidates
  4. Weekend Review of S&P 500 as of the Friday Close April 15, 2011
  5. Update While We Await a Breakout – October 16, 2011
  6. September 01, 2011: Our New Paper-trading Portfolio is Up and Running
  7. Market Update, Week Ending April 01, 2011

Filed under: Stock Market Basics

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