Saturday, January 16, 2016

Determine Market Trend (15 Jan 16)

Bull Market, Pullback, Correction and Bear Market
(1)     Pullback: -5% off 52W High   (2) Correction: -10% off 52W High   (3) Bear Market: -20% off 52W High

Benchmark
Symbol
% off 52-Wk High
Market Trend
S&P 500
SPY
-10.92%
Correction
Dow 30
DIA
-11.56%
Correction
Nasdaq 100
QQQ
-12.61%
Correction
Russell 2000
IWM
-21.56%
Bear Market
Although your ultimate goal is to use the stock market to build wealth, you must also avoid losing money.  Knowing how to read the market as a whole will help you to prosper during bull markets and protect assets during bear markets.

Long-Term Trend

The “big dog” of moving averages is the 200-day moving average.  If the index is trading above that level, the long-term trend is considered up; generally, the 200-day moving average is seen as a proxy for the long-term trend.

Benchmark
Symbol
Price
200-DMA
Market Trend
S&P 500
SPY
187.81
203.53
Downtrend
Dow Jones 30
DIA
159.68
172.87
Downtrend
Nasdaq 100
QQQ
100.84
108.55
Downtrend
Russell 2000
IWM
100.12
117.97
Downtrend
In an up-trending market, I will lengthen holding times and give my holdings more room to run.  In a down-trending market, I use short holding times and grab profits quickly. 

  Short-Term Trend

Average Directional Movement Index (ADX) – The indicator uses three lines to tell both the trend direction and the trend strength.  When the +DI is above the –DI, buying is stronger than selling.  When –DI is above the +DI, selling is stronger than buying.

Benchmark
Symbol
+DI
-DI
ADX
Trend
S&P 500
SPY
15.45
49.53
30.49
Downtrend
Dow 30
DIA
15.62
47.75
27.96
Downtrend
Nasdaq 100
QQQ
16.10
52.55
31.36
Downtrend
Russell 2000
IWM
10.62
52.24
36.25
Downtrend
The ADX line helps determine the strength of the trend.  An ADX reading above 25 indicates a strong trend.  If the trend is up, use bullish leveraged ETFs.  If the trend is down, use inverse leveraged ETFs.

 

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