It’s time to take another look at our favorite stock market index chart, the S&P 500, shown below.

Anyone who has read the recent posts to this Stock Market Basics website would be aware that I have mentioned that the key reference line on the chart is that of the 20-day moving average (20 dma), shown as the wavy green line on the chart — that’s just my own opinion of course, as are most of the interpretations of chart signals expressed here. What we’ve been looking for is what we are seeing on today’s chart, shown below, and that’s a close of trading at above the 20 dma level after moving up from a series of trading “bottoms” that occurred just above the 1120 level.

The next challenge for the S&P, if it continues to move upwards, is to penetrate through the 50 dma at around 1259, which is also a former support level established in late June of this year.

Not everyone will agree
For many, that will not be a convincing enough of a signal to re-enter the market to the upside, especially since the trade volume is not too great for the day. The volume is indicated by the vertical bars in color at the bottom of the main chart. Here is an article that warns Stock Buyers Beware, worth a read for sure.

But to me the S&P chart looks promising and with another good day like this today even if there is a small reversal tomorrow, I will be ready to start buying stocks for our next Stock Market Basics paper-trading portfolio.

But some are saying maybe?
As for my comment above that not everyone is in agreement that we’ve reached a market bottom, after completing this article I came across a piece on the internet, on MaketWatch by Mark Hulbert, titled Leading Indicator of a new Bull Market — We will have to wait and see!

On the Watch List
Almost all of the stocks that we have on the Stock Market Basics Watch List, referred to with selected stock charts in out last post, are already above their own 20-day moving averages. They also have what I consider as a secondary confirming Buy signal, one that I like to follow, known as a cross-over of the 5 dma and  the 10 dma lines.

Also, another crossover that I like to see, not necessary followed by too many, is the MACD — it appears in the small graph below the main chart — shown below as black and red lines.

Not Scientific
I should mention that such chart “analysis” as I am referring to here as signals is certainly not scientific but is based more on the expectation that it depicts patterns that have occurred thousands of times in the past and that a sufficiently good percentage of them have proven to be predictive of a profitable outcome — enough to warrant them being taken into consideration, together with other attributes.

Stocks to trade
The Watch List compiled to date (with today’s closing price in brackets), includes ALXN (57.02), CTAS (31.50), WYNN (147.11), LVIS (45.81), MGM (11.16), and MPEL (12.57), plus a new addition in TIF (71.52), and only MGM and MPEL are still blow their 20 dma.

So, unless the market falls quickly back to the previous lows, around 1120, then I will take paper trading long positions in all those stocks above their 20- dma’s.

The objectives of the Stock Market Basics website
This website is targeted at newcomers to the stock trading arena who are wishing to learn the stock market basics. The purpose of illustrating our stock picks with charts, and paper trading them in real-time, is to give the newcomer an understanding of the trading process, how to select and qualify the stock candidates and to how to recognize the potential entry and exit signals that may be provided by the stock price patterns as they evolve and show up on the charts. That information together with a set of simple guidelines to minimize risk and manage trading capital are the essential stock market basics we wish to convey. Win or lose (on paper) the actions that we take and illustrate here on this website should teach us something.

Note: Click on the chart below to enlarge for a sharper view.

S&P 500 Index Chart for 29 Aug close

S&P 500 Index Chart for 29 Aug close

Related posts:

  1. Let the Simulated Trades Begin, the Next Step in Learning Stock Market Basics
  2. Portfolio 3 — Getting Ready for Paper Trades
  3. Stock Market Basics Paper Trading Portfolio No. 3
  4. About Stock Market Basics Paper Trading Portfolio 3
  5. Paper Trading Portfolio No. 3 — An Explanation of the Stock Market Basics Approach to Short-term Trading
  6. Constructing a Portfolio for Tracking Trades in Real Time
  7. The Basics of Stock Market Basics, What You Need to Know

Filed under: Stock Market Basics

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