Saturday, March 5, 2016

Determine Market Trend (5 Mar 16)

Bulll 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
-4.93%
Bull Market
Dow 30
DIA
-5.48%
Pullback
Nasdaq 100
QQQ
-8.43%
Pullback
Russell 2000
IWM
-15.60%
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
200.43
200.96
Downtrend
Dow 30
DIA
170.02
169.96
Uptrend
Nasdaq 100
QQQ
105.67
107.63
Downtrend
Russell 2000
IWM
107.72
114.30
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

Short-term trends can be captured using short-term moving averages.  The 20-day moving average provides you a simple yet effective way for knowing what side of the market you should be trading. 

Benchmark
Symbol
Price
20-DMA
Market Trend
S&P 500
SPY
200.43
192.10
Uptrend
Dow 30
DIA
170.02
163.91
Uptrend
Nasdaq 100
QQQ
105.67
101.39
Uptrend
Russell 2000
IWM
107.72
100.76
Uptrend
If the stock is currently trading below the 20-day moving average then you clearly should only take a short position; conversely, if the stock is trending higher then you should enter long.

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