Finance and Stuff

Thoughts on finance and other stuff by Johan Lindén

Stock Market Analysis Follow-up

In my previous stock market analysis I thought the market would make a down turn before reaching multi-year highs and then make a false break up before a big downward trend.

What happened was, as you can see in the chart below, that the S&P500 index only made a minor move down (A), before it broke up (B) and giving a false buy signal so that people would buy, then continue down (C) tricking people it was a false buy signal so that they would sell. After shaking of some weak hands of their positions the years strongest rally started (D), which was followed by the years biggest correction (E) which again landed below the previous multi-year high.

The S&P 500 was trading at 1357 at the previous analysis, while todays futures indicate and opening at 1361 (+0,29% change) in over two months time. So although a lot has happened in volatility, nothing much has shifted when it comes to valuation.

So what can be learned from this? Well, we still see that the market trying to make the most amount of people to become losers. We also see that contrarian sentiment has been reliable. It showed us the bottoms at (C) and (E), when people quickly panicked and started talking about a bigger correction down. It also showed us that the tops at (B) and (D) were not likely to give stronger long-term trend changes since people had become skeptic about the market trend.

That is obviously the reason why the market did not continue down but instead made new multi-year highs.

S&P500 technical analysis stock market

What can we expect next?

Most statistical signals are indicating that the market will be higher in the coming months. The risk-averse person should be out of the market while the speculative person should be buying on short-term oversold conditions and selling on overbought conditions.

What we should look for before expecting a longer change of the trend is that sentiment gets increasingly bullish while hitting new highs or that it gets stubbornly bullish while making the next correction down.

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1 Comment

  1. Anonymous

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