Prior to examining other technical methods used to analyze stock market trends, we rely first on the chart trendlines and moving averages. The weekly chart of the S&P 500 clearly shows the trendlines, moving averages, a major resistance zone that covers the bear market of 2007 and 2008, and the current bull market.

On the left of the chart, we clearly see the bear market that began in October 2007 and bottomed in March of 2009. From the bottom in March, I’ve drawn the major bullish support line (red dash line), which connects with the low of last summer. And from the summer low is the line of intermediate support (smaller red dash), which is more difficult to see because it tracks the 50-day moving average (blue line).

Note the recent penetration of the intermediate support line and the 50-day moving average. It is this penetration of the intermediate trendline, the close under the 50-day moving average, and the lower high that confirm an intermediate downtrend in the S&P 500. But the bull market is intact as long as it stays above the major bullish support line and the 200-day moving average (red line.)

Some readers have asked, “Why now, when the economy is in better shape, are stocks finding it difficult to make new highs?”

The answer to that question is depicted on the left side of the chart. From early 2008 to September of that year, stocks traded from about 1,240 to 1,440 before breaking in mid-September for the final plunge to new lows.

This year, the S&P 500, along with the other major indices, has advanced into the middle of that trading zone — a huge area of stock “supply” where stockholders who have held stock for over three years can finally sell at their cost. They have been patient, but now they want out. It is this wave of sellers that has formed a brick wall of resistance that has halted this year’s advance.

The zone of resistance spans about nine months. However, some of those buyers have liquidated their holdings, and so the potential overhead is estimated to be from three to five months. We may have to endure a sideways market through this summer, but the bright side of this is that there will be bargains for those who are savvy enough to identify them and courageous enough to act.

For one bargain to buy now, see the Trade of the Day.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.