There are a number of ways of looking at the stock market. There is fundamental analysis, quantitative analysis and technical analysis. There is top-down analysis and bottom-up analysis.
You can look at the 11 market sectors and decide on which ones to overweight or underweight. You can drill down into over 200 industries and sub-industries.
Lots of ways to slice and dice.
I prefer to use technical analysis and deal with the "voodoo" comments and "holier than thou" arrows from academics. Even within the subject of technical analysis there is a diverse body of knowledge with various approaches going as far back as the 1740s in Japan.
Let's take a look at the S&P 500 Index and SPDR S&P 500 ETF Trust ETF (SPY) with two indicators that have stood the test of time.
In this daily Japanese candlestick chart of SPY, below, we can look closer at a number of "tests" of the $420-$410 area. The first decline to that zone was in late January and prices rebounded into early February. That bounce was not long sustained and prices sank to a lower low in late February.
A recovery of just a few days resulted in yet another decline to the $415 level followed by a stronger rebound. SPY has declined from late March to the end of April and could be headed lower.
Trading volume has declined since late January but the On-Balance-Volume (OBV) line has stayed in a downward trend telling us that sellers of SPY have been more aggressive than buyers.
The 12-day price momentum study is not showing us a bullish divergence to suggest that the pace of the decline is slowing. So far the candlesticks are not showing us a bottom reversal pattern like a hammer or a bullish engulfing pattern or a harami.
