Wednesday, December 3, 2008

Let's Put Things In "Technical" Perspective

Charts represent price movement and market psychology. They're simply a snapshot of where we've been a guide as to where we may be heading. The emotional response and volatility to news flow in recent weeks is certainly reflected in the charts below.

First, let's take a look at the S&P500 on a weekly basis. The sell off starting in October was characterized by high volume with several days of dramatic volatility. The candlestick format will reveal where the market opened and closed for the week. Hollow or clear candlesticks represent weeks in which the market closed higher than it opened. On the other hand, closed or dark candlesticks reveal weeks in which the market closed below the opening (click charts to see enlarged version).

One thing that catches my attention is the disparity or difference between the S&P500 and the 50-day moving average. The dramatic sell off on above average volume reflects an oversold condition (OS). Over the last few years, the S&P500 tended to drift above & below the moving average and touch the line periodically - a reversion to the mean. Present pricing would seem to indicate an OS rally is in the cards.

A closer look at Apple (AAPL) on a daily basis indicates a floor or base may be developing at the $90 area. Having retreated from the $200 nose bleed section of the stock world, the stock seems to be finding some love once again after decreasing 55%. Barring a miserable holiday season (although the Apple stores are off to a good start), the stock looks to have enough buying power to move above the $100 level and thus its 50-day moving average.

Finally, Prologis (PLD) may offer some attractive bottom fishing. The staggering volume as of late is typical of a sea change. Weak hands give up and new buyers come in. The company is certainly not immune to the real estate cycle and does carry a significant amount of debt. Current prices appear to have factored in all of this information. If the firm continues to stabilize at current price levels, it could move back to the 50-day moving average.

Charts courtesy of Worden Bros.

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