I've been trying to get a feel for the big picture of the economy these days. I was listening to Bloomberg talk bonds, commodities, and FOREX, trying to piece it all together and figure out what hand is moving this market.
The way I figure, the Fed is printing money to buy government debt (even if it's only 20 days old) as well as everybody's mortgage. To do this, it is printing money by the billions, which is making the dollar fall. The falling dollar intrinsically raises the prices of dollar-based stocks, thus giving us a 'bullish' market. I happened across Motley Fool for the first time in years today, and read a claim that the falling dollar raises local stocks because it increases export revenues (in dollars). Sorry, but that just sounds like reaching and cheerleading a la CNBC, and I'm still too cynical.
To get a big picture, one must survey the area from 10,000 ft. So, I decided to just get technical and examine the S&P on a weekly scale, figuring this would also be a good time to take a closer look at the technical indicators that I've been exploring.
By taking a step back and looking at the weekly chart, it seems that a few of these indicators forewarned of the big October 2007 slide, and the March 2008 recovery. It's a matter of simple divergence between the stock price and RSI and the slower %D of Stochastics.
The red line of %D is hard to see in this picture, but the yellow arrows follow the higher lows, and lower lows. I also noticed that there were three lows in the trend before the reversal occurred, which is something Constance Brown mentioned in All About Technical Analysis. She said to watch for three peaks or valleys in Stochastics when looking for divergence to price; that will be the more reliable signal.
Also of note is that weekly RSI has powered its way back to a value close to 65, which has been a reliable level of resistance for the 5 years shown in this chart. Support for RSI is kind of rough around 50, and sometimes 40. Combining where RSI is with the direction of RSIS and %K Stochastics might help signal immediate and short-term trends.
Here's the same chart again:
While staring at this chart, I suddenly noticed the double top at the peak of the market. Another important indicator mentioned by Constance Brown, she says that double tops/bottoms are the most reliable reversal indicators around. Volume is supposed to play a part in that, but for some reason Think Or Swim won't give me volume for the S&P 500 Index.
In short, looks like the S&P is due for some more pullback from a rising wedge formation. But it probably wouldn't go below 1012.