Determine Market Trend (8 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	-8.96%	Pullback
Dow Jones 30	DIA	-9.64%	Pullback
Nasdaq 100	QQQ	-9.87%	Pullback
Russell 2000	IWM	-18.63%	Correction

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	191.92	203.83	Downtrend
Dow Jones 30	DIA	163.24	173.25	Downtrend
Nasdaq 100	QQQ	104.01	108.58	Downtrend
Russell 2000	IWM	103.85	118.48	Downtrend

In an up-trending market, I will lengthen holding times and give my holdings more room to run.  In a wide trading range or a down-trending market, I use short holding times and grab profits quickly.