Software & Finance

Stock Market Feb 2011 - Technicals Versus Fundamentals

Feb 17, 2011 Dow Jones Index closed today at 12318.14 and S&P 500 at 1340.43 which is above its two and half years high. VIX - CBOE Volatility Index which oten used to indicate the fear in the stock market closed today at 16.59.

Let's look the S&P technical levels. S&P 500 is trading well above its 200 days moving average of 1193.84 and above its 50 days EMA of 1280.84. Technical indicators are suggesting to enter US market with a long position.

However it would be perfect time to liquidate the long positions and open short position gradually. Still Market is holding its level close to annual high because of its strong technical support. For the same reason, Speculators and Day Traders are hesitating to short the market.

Which one to follow - Technicals or Fundamentals

My answer would be both. We have to follow both technical indicators as well as fundamentals. With fundamental we may come to know about where the stock market will be heading into over one or two year period. Signifiant rise and consitant unemployment report along with plunging home prices tell us double dip recession in inevitable.

Based on fundamentals, we need to short the US market. However technical indicators are supportive for bull market. A smart way of trading is to short the market with long term perspective and also hedge your position with LONG CALL options in the short term. Alternate strategy is to long US equities with hedging by buying put options. However the formar approach is better than the later one.

Technicals may provide a short term outlook on resistance and support levels, however fundamentals are the one to win over long term.

S&P - Technical Indicators

10 Days EMA 1322.66
21 Days EMA 1309.57
50 Days EMA 1280.84
200 Days EMA 1193.84

Posted onĀ Feb 17, 2011