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The market continues to show increased, uncomfortable volatility, but in recent sessions, positive moves by the major indices have outweighed the negative. In fact, most of the damage that occurred during this correction has already been undone. The Nasdaq has climbed back to the level where it was at the beginning of July, which just happened to be a multi-year high. The S&P 500 and the Dow are still lagging as this recovery is being led by the technology sector, but they have also substantially recovered.

The chart below clearly shows that the recovery has been as dramatic as the correction. The black line is the daily closing price of the Nasdaq. The gold line is a 50-day simple moving average. Notice that the index has climbed back above this average. There is also confirmation from other technical indicators that the situation is much better. The middle section of the chart is a moving average convergence divergence (MACD). It shows that momentum is positive and the MACD is on the verge of moving back into the positive area. The bottom portion of the chart is a relative strength index (RSI). It has climbed back above 50, another sign that market momentum is positive and that the Nasdaq has the strength to sustain a rally.

The combination of these and other technical indicators paint a picture of a market that is growing in strength and momentum. For individual investors, that means this is a good time to think about putting assets back into the market. If you bailed out of any positions to reduce your risk exposure, now is a good time to look at getting back in. One word of caution, though. This recovery has been rapid and steep. So it would not be surprising to see stocks retreat slightly or at least move sideways for a few days.
F.S.

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This entry was posted on Thursday, September 6th, 2007 at 5:09 pm and is filed under Newsletter. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.