Americans socked away a surprisingly large chunk of change in February as they reined in spending and hoarded savings from lower gasoline prices, putting a crimp in the economy.
And they felt good about it. "The consumer is confident according to surveys,” says JJ Kinahan, chief strategist at TD Ameritrade. “But there is a disconnect between confidence and spending. The confidence is not being played out in the durable goods and retail sales numbers.”
Consumers followed the severe weather patterns and put their spending, which drives roughly two-thirds of total U.S. growth, on ice in February. U.S. personal spending inched up a paltry 0.1%, following January’s 0.2% pullback. At the same time, Americans boosted their savings rates to 5.8% in February, the highest level since the end of 2012, according to the Commerce Department report.
The University of Michigan Consumer Sentiment Index hit 93.0 in March, down from 95.4 in February. Despite the decline, a reading above 90 is still considered a strong number.
The cautious approach to consumer spending hasn't broken the broader stock market uptrend. "There is no real shift in sentiment. Buying dips has paid off for the last year. It is a trend until it's broken," Kinahan says.
As the old market saying goes: the trend is your friend. Longer-term investors and short-term traders can look to a variety of technical indicators to help measure and identify trends. These tools range from a simple moving average to a Bollinger Band indicator, which is often used to help identify extremes and short-term targets.
The S&P 500 has bounced roughly from 2000 to 2100, but the longer-term uptrend hasn't been broken. "Bollinger Bands give you an indication of a few different levels where you might want to consider buying," Kinahan says. Figure 1 shows how Bollinger Band lines can identify potential support and resistance for a market.
Investors looking to dive into the world of charting will find that Trade Architect offers a number of drawing and studies tools that can be used across trading and investing time horizons. "If someone is trading intraday or on a swing basis, you can apply these indicators to a shorter-term chart and use [that] for potential entry and exit points throughout the day," says Chad Cocco, Active Trader group, TD Ameritrade. "They also offer a longer view on daily and weekly charts. You can apply the studies to longer-term charts to determine potential entry and exit points if you are a buy-and-hold investor."
Stock trading, unlike consumer spending, doesn't get iced with freezing weather. When the temperatures turn higher, it's likely consumer spending will, too.
Technical analysis is just one way of evaluating potential trade opportunities. It is based on theories, and there is no certainty of results.
Firm Up Your Foundation
Learn more about technical charting basics and tools for trend identification by reading “Channel Surfing & Connecting the Dots.”