The stock market is a venue in which shares of companies are publicly traded. The resulting transaction sets the price of a particular stock for the current moment. A stock price will vary because of expectations of future growth in the company’s revenue and earnings. A lack of growth or other serious issues, such as legal liabilities, will send the stock price down due to the increased level of uncertainty. Once a person or fund buys a share of a company, they become a shareholder. The value of their investment is taken from the stock price multiplied by the number of shares owned.
As we are in the middle of earnings season, many investors are questioning what the next most likely direction for stock prices will be. While individual stock prices will be determined by their company-specific quarterly earnings releases, the market overall as represented by the S&P 500 has many factors influencing the gyrations, some of which can be understood through technical analysis.
With a macro-economic backdrop of poor economies around the world, including the European continent that continues to have serious structural issues, you would think that this type of environment would be extremely bearish for stock prices. When investing, I would urge you not to be dogmatic and to let stock prices show you the path of least resistance. Technical analysis is one tool that can help illuminate the highest probability of directional movement in stock prices, in addition to helping you understand the fundamental drivers of the market.
Chart courtesy of www.StockCharts.com.
Taking a look at stock prices from an overall market viewpoint by examining the S&P 500 through technical analysis, one should note the importance of any break in a trendline. The most notable example is when stock prices broke down through the long-term uptrend in early April. This has led to a decline down to the 200-day moving average, a very important moving average when it comes to stock prices and technical analysis.
Stock prices, having moved down into June, have since rebounded, forming an upward trading range. Stock prices are now hitting the top end of the downward-sloping resistance level formed between the two tops in April and May. Many traders following technical analysis will … Read More