This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Broad Indices Remain Stuck in a Channel

Equities show more buying power right now that at any time since last summer. Does this uptick mark the end of the bear market or just another false dawn ahead of even lower prices in 2009? While there's no perfect answer that big question, the weekly index charts can help us make informed decisions about this recovery effort.

I'll use exchange-traded funds in this review, rather than the indices, because they give us useful volume information that's missing in the underlying instrument. This is especially important because prior oversold bounces in this bear market printed unusually weak daily volume that indicated eventual failure and a rollover to lower prices.

SPDR Trust
Click here for larger image.
Source: eSignal

The SPDR Trust (SPY) illustrates the historic decline between October 2007 and November 2008, with the fund bouncing at 2002 support under $80 just two weeks ago. Price action since that time shows a moderate bounce with considerable week-to-week overlap. Notably, the instrument has yet to mount the November swing high at $100.86.

So, for now, S&P 500 price action is still engaged in an active downtrend noted by a continuous series of lower highs and lower lows. This will change when the index finally rallies over the last weekly high. However, the fund also shows a major resistance level between current price and that high, in the form of a declining parallel channel.

The two-month sequence of highs and lows has generated a channel, with resistance near $96.50. It's common for this type of pattern to develop in the latter stages of downtrends. In theory, it's difficult for price to break out of this formation before it grinds out at least three highs and lows. This raises the possibility of another lower low before this bear market finally ends.
1 of 3

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
EEM $34.39 0.00%
IJS $115.73 0.00%
IWN $95.17 0.00%
IWV $121.14 0.00%
SPY $206.33 0.00%


Chart of I:DJI
DOW 17,773.64 -57.12 -0.32%
S&P 500 2,065.30 -10.51 -0.51%
NASDAQ 4,775.3580 -29.9330 -0.62%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs