Manny Backus wrote this on October 28, and he was right. For more by Manny, go here.
Will it be a stock market doomsday?
Courtesy of Manny at TradingTips
Recently, the strong sell off has thrilled the bear market contingent who are on cloud 9 while claiming misery. In the meantime, the bulls are puzzled at why this sell off had such an impact… and are anxious that the bears may be right.
Observing the apprehension produced by the selling, I decided to take a closer look at the fundamental and technical analysis of the U.S. stock market. What I discovered may shock you.
Let`s begin with the fundamental picture:
The U.S. economy continues to recuperate. The Gross Domestic Product was definitely growing throughout the second quarter. This is a key indicator that the stock exchange is safe right now.
Gas costs are declining because of falling oil prices. Low gas costs help to spur widespread economic growth as people will continue to buy more things. Keep in mind, the U.S. will likely become energy independent. And that means the conflict in the Middle East will have less and less effect on our economy.
Ultimately, majority of economists anticipate inflation will begin to move higher. Take into account that the stock market is forward-looking, and current prices reflect the future earnings potential.
If we take a look at the fundamental analysis, it shows that the market sell off is not indicating any signs of stock market crash.
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As for the technical picture:
Actually, the DJIA has crushed the support levels of the 50 day simple moving average and the essential 200 day basic moving average. The majority of technical analysis trades consider this to be a desperate sign for the fate of the bull market.
On the other hand, there is a bullish signal. The 16300 zone in the DJIA is clear triple bottom support.
If value drops underneath 16200 on the daily graph, I would consider this technical support undoubtedly broken.
Likewise, the relative strength index is near being in the oversold domain in the 34 range. This implies that most of the selling has already taken place. Positively, markets can stay in oversold and overbought conditions for extensive periods of time, however it is a bullish sign.
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If you zoom out to a weekly chart, the DJIA has barely hit the 50 week simple moving average on the down and is in excess of 3500 points over the 200 week simple moving average. This looks good for the bulls. Each pullback to the 50 week simple moving average has been purchased. There is no reason to think that this pullback will be any different.
In conclusion, I certainly believe that the selling is simply a pullback on the route to all-time highs. So, the dip ought to be purchased by savvy investors!
Manny Backus known as the “Stock Trading Whiz Kid” or “the untutored prodigy of stock investing” has experienced great success in the stock market since he was 15 years old. Feel free to download his Technical Analysis guide from his blog!
