December 03, 2008

Technical Analysis on S&P 500 Index

Stocks rallied for the seventh time in eight trading days today, with the S&P higher by 2.6% to 871. Of course, there was one huge down day on Monday, but despite Monday's huge hit, the short-term outlook is still pretty strong.

The following is a 6-month daily chart of S&P 500. We have got a Positive Divergence from MACD for the period from the end of October to end of November. As a side note for the term extracted from "A Positive Divergence occurs When MACD begins to advance and the security is still in a downtrend and makes a lower reaction low. MACD can either form as a series of higher Lows or a second Low that is higher than the previous Low. Positive Divergences are probably the least common of the three signals, but are usually the most reliable, and lead to the biggest moves."

In addition, in the last two days, it forms a nice Bullish Harami pattern. With today's close, it formed a nicer Bullish Three Inside Up pattern which is the confirmation signle of Bullish Harami formation.

However, we are still not totally out of woods yet, as today's close is still lower than Monday's high. Let's see how it develops in the next few days.