The SP500 remains in a strong uptrend, but the index has posted a
sizable gains for 2013 thus far so it’s only logical that a pullback
within this bull market takes place sooner than later.
With May now upon us and historically prices fall more times than not
I feel a 3-4 weeks correction is on the verge of starting. This Friday
we just had very strong economic numbers confirming the economy is
recovering. This news has sent stocks sharply higher as shorts cover
their positions and investors who are not yet long get into position to
profit from higher prices. But the herd psychology and their trades are
typically incorrect as they invest based on fear and greed. The old
saying is buy on negative news and sell on positive news will typically
get you on the correct side of the market more times than not if used
with price, volume and cycles.
The Technical Traders – SP500 Index Weekly Chart
If we look at the price of the SP500 we need it to breakdown below the recent pivot low before I become bearish.
Volume which is not shown on this chart is below average as price moves higher and this is a bearish sign also.
Looking at a basic cycle using the stochastics indicator we can see
that the current cycle is starting to turn down. Cycles tend to lead
price during an uptrend so we could still have stocks move higher for
another week or so but be aware that when price starts to drop its
likely a market top. But until then you must respect the uptrend. Stocks
can remain overbought and toppy looking for months… so done be gambling
and trying to pick a top until we see breakdown start.
SP500 Stocks Trading Above 200 Moving Average – The Technical Traders View
Stocks trading above the 200 day moving average is a great indicator
for helping spot broad market underlying strength/weakness. It does lag
the market but is still very powerful. The chart below shows this info
and my thinking of what is likely to unfold sooner than later though
price may still rise for several days yet.
I also use a similar chart for timing swing trades and market tops
which are based on stocks trading above the 20 day moving average. This
chart is not shown here but is now trading at a level which generally
triggers selling/market top.
Stock Market and SP500 Trading and Investing Conclusion:
In short, I am still bullish on the market as I focus on trading with
the trend. I do not pick market tops and I do not pick market bottoms.
Knowing that stocks make their biggest moves at the end of their uptrend
and at the end of a down trend it’s only common sense that risk is
extremely high if you are betting against the current trend.
The best thing to do is wait for a technical breakdown and reversal
which puts the odds more in your favor with much less risk and typically
a clear line in the sand to exit the position if you are incorrect.
The last major stock market top which formed in September of last
year had a series of strong news and strong price action persuading the
herd to buy stocks. Instead it was the last impulse wave up just before
a strong correction took place. That is much like what we see now with
the economic news.
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When the metals markets tumbled in mid-April, 
