Stock Market Technical Analysis – Weekly Gain Leads to Another Upgrade

Stock Market Technical Analysis – Tech It Easy (thru November 7, 2014)

Stock market technical analysis is all you need to know, complete hogwash or somewhere in between. It depends on who you ask. If you find it interesting, you’ll probably like reading this weekly feature.

NOTE: You may be reading an outdated article. Please visit my latest stock market technical analysis summary of the S&P 500 for more.

I used to have screenshots of the various stock market technical analysis assessments I present below, as well as a bit more analysis for each one. In order to save time, I will not be doing the screenshots and will abbreviate some of the text for each analysis as well. The last time I did a comprehensive analysis can be foundhere, in case you want to see what it looked like.

The next few paragraphs are my standard intro to stock market technical analysis – you can skip down to the table (or click “continue reading”) if you read this feature regularly: 

Many people who trade in the markets believe that there are patterns that can generally lead to profitable trades. By analyzing stock charts that show the change in price along with the volume (how many shares were traded), “technical analysts” believe they have an edge and can time their trades profitably. There is significant controversy over this subject, however. Others say that, unless you have some information that no one else does, basically you can never beat “the market” because everything is already baked into the current price of a stock.

Nevertheless, supporters of stock market technical analysis are everywhere, and the tools for their trade can be found throughout bookstores and the Internet. I like to follow some websites that do some of the work automatically and provide a snapshot opinion of whether a particular stock is considered “bullish” (going to go up in price), “bearish” (going to go down in price) or “neutral” (stay about the same price).

For simplicity, I’d like to start by showing you a snapshot of what several stock market technical analysis websites suggest about the exchange traded fund (ETF) with the ticker symbol of SPY. This fund is supposed to go up and down the same as the S&P 500 index does. And many people consider the S&P 500 index (a measure of the price of the 500 largest companies that trade in the U.S.) to be an accurate gauge of where “the market” stands.

For each of the sources below, where I have a choice, I will use a measure that attempts to predict the future direction of SPY or S&P 500 in the next 3 months.

S&P 500 Technical Analysis Summary

Source: Barchart.com   |  BULLISH   (Upgrade)

Easy Notes: BarChart.com says that the price of SPY will probably rise over the next three months. This is the 1st “bullish” assessment after 6 consecutive “non-bullish” assessments. All three signals are at “buy,” but only one is a strong signal. Fortunately, two of three signals are headed in the right direction (the right direction would mean “buy” signals are strengthening and “sell” signals are weakening). Overall, this is a neutral assessment.

Source: CXOAdvisory.com   |   BULLISH

Easy Notes: CXO Advisory Group uses stock market technical analysis to project the earnings from the S&P 500 companies as well as the expected inflation rate. Using these two estimates, it provides a projection out to about three months of the S&P 500 index.

The two most reliable models (REY-M and REY-L) for projecting 3-month movements project an average 3.9% gain from the current level by the end of January 2015, which translates to about a 17.9% annualized rate of growth. That is well above an average rate of growth. This is the 10th consecutive “bullish” rating after one “neutral” rating that followed 42 consecutive weeks at a “bullish” rating.

Additional Info

I will estimate the forecast annualized growth rate from the projection. If it is 6 percent or higher, I’ll categorize as “bullish” – below zero will be “bearish” – and anything in between will be “neutral.”

Why does this source sometimes go against what the other stock market technical analysis sites are saying? It’s because this model assumes that stocks should be valued at a certain price based on their estimated future earnings and the rate of inflation. Wherever the current price is relative to that projected price is the amount it expects prices to change. So, if stocks take a tumble, it just means they have that much higher left to go to reach the targets that CXO believes they will attain. In contrast, when stocks rally strongly, it lowers the amount left to rally for the rest of the three month period.

Source: StockTA.com   |   NEUTRAL

Easy Notes: StockTA.com provides its stock market technical analysis by analyzing numerous different technical indicators and combining them into a composite rating for either short (30 days), intermediate (60 days) or long term (120 days). We are focusing on the long-term so it is as close to 3 months as possible.

The long-term is currently at “neutral” for the 3rd consecutive week after 2 consecutive weeks at a “bearish” rating.

Source: Price vs 200-day Moving Average from Finviz.com   |   BULLISH

Easy Notes: SPY closed 6.83% above its 200-day moving average (versus 6.24% above its 200-day moving average last week), which is generally considered a good sign. This is the 3rd consecutive bullish assessment after a 1-week bearish rating that came after 96 consecutive bullish assessments.

Additional Info

Moving Average – take the average of the closing price (last price of the day) of the last “X” number of trading days. In this case, we used the last 200 trading days, which is a common time frame for analysis.

I will base the rating of this section purely on the 200-day moving average, not the other tools that I mention from the site. Those will only be used for additional commentary.

Stock Market Technical Analysis Summaries – Additional Sources

Below, I will mention a few other sites’ stock market technical analysis of where things stand with SPY or the S&P 500. I don’t include these in my calculated average at the bottom of this page, however. This is because these other sources don’t necessarily look at a 3-month time period for their forecasts. But it’s nice to see what they are saying to get a sense for the consensus view.

Source: AmericanBulls.com   |   BULLISH   |   This site uses stock market technical analysis for the last few days of trading only, using the opening price, closing price and up/down movement of the day to make a prediction.  That information is translated into a series of “candlesticks” that technical analysts believe can show patterns that correlate with ups and downs.

Source: TradingMarkets.com   |   BEARISH  |   The “PowerRatings” system analyzes all kinds of quantitative data to forecast the price for the next 1-5 trading days, but it’s a proprietary method of stock market technical analysis (i.e., a “secret”).  It probably includes a lot of analyses that other sources on this page also use.

Source: StockSelector.com   |   NEUTRAL  |  No signal was issued recently.

Source: StockConsultant.com   |   BEARISH   |   Bullish chart pattern, but price is at resistance.

Easy Take

The S&P 500 edged higher by 0.7 percent this week to a new all-time high – its third consecutive weekly gain. The strong week was enough to upgrade the BarChart.com assessment to “bullish” again. As a result, the overall consensus remains “bullish” but not unanimously.

Out of the four stock market technical analysis sources I’ve mentioned, we have 3 bullish, 1 neutral and 0 bearish. If we were to average these using 3 points for “bullish”, 2 points for “neutral” and 1 point for “bearish,” we’d get an average of 2.75 out of 3 (versus 2.5 one week ago). If we split the interval between 1 and 3 (which are the minimum and maximum we could get as an average) into three equal parts, that means the following:

1-1.666 = Bearish
1.667-2.333 = Neutral
2.334-3 = Bullish

Right now, the several indicators I’ve chosen to follow suggest a bullish outlook for the S&P 500 and, most likely, the market in general for the next 3 months. This outlook was bullish one week ago.

The outlook shown above is based on what the stock market technical analysis sources themselves are predicting. I have been examining the relationship between components of the analyses I’ve mentioned to the S&P 500 index over the subsequent 4 weeks or 13 weeks. Based on that, I publish an Easynomics stock market forecast for the S&P 500.