Just four trading days remain in 2011, and while volume is expected to be low, that does not mean we should ignore the markets this week.
As discussed earlier this month, the typical seasonal pattern is for stocks to bottom in November and then stay strong into May. If you look at the daily data, the Spyder Trust (SPY) typically has a short-term bottom on December 19, which is precisely when it made its recent low.
The S&P 500 Advance/Decline (A/D) line has broken through resistance and is acting stronger than prices, suggesting the rally can continue into early January. Typically, stocks will form their next short-term low at the end of January.
There are quite a few stocks that show double-bottom formations, and one low-priced health care stock has already completed its double bottom.
Investors are also closely watching the gold market, and the increasing tide of bearish articles on gold is what is needed before a bottom can be completed. On a seasonal basis, gold typically tops in February, and the technical evidence discussed below suggests that one more drop could set up a good buying opportunity in the SPDR Gold Trust (GLD) as well as one widely followed gold mining stock.
Chart Analysis: The Spyder Trust (SPY) closed above its flat 200-day moving average (MA) at $126.17 on Friday and is very close to breaking its downtrend, line a.
- The completion of this flag formation (lines a and b) has Fibonacci targets at $133.26
- Major chart resistance from last summer is in the $134.80-$135.70 area
- The S&P 500 A/D line has broken its downtrend, line c, and has moved above its early-December highs
- The S&P 500 A/D line is still below the November highs while the NYSE A/D line is acting much stronger
- It now looks as though the break of the uptrend (line d) in the A/D line was false
- There is initial support at $125 with stronger support at $123.30-$124
Sunrise Senior Living (SRZ) is a small-cap health care company that provides senior living services in the US. The stock peaked at $12.44 in April 2011 but traded as high as $42.97 in June 2007.
- SRZ hit a low of $3.68 in October and held well above $4.00 in the latter part of November
- The close above resistance at $5.90 (line e) completed the double-bottom formation with upside targets in the $8-$8.20 area. This also corresponds to the 50% Fibonacci retracement resistance
- The volume was considerably higher at the October low than it was in late November (see circles)
- The weekly on-balance volume (OBV) broke its downtrend, line g, in late October
- The relative performance, or RS analysis (not shown), has completed its bottom formation
- There is short-term support now at $5.70-$5.90 with stronger support at $5.30-$5.40
NEXT: How to Spot Upcoming Opportunities in GLD