Determine Market Trend (29 Apr 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
Dow 30	DIA	-2.11%	Bull Market
S&P 500	SPY	-2.18%	Bull Market
Nasdaq 100	QQQ	-8.11%	Pullback
Russell 2000	IWM	-11.61%	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 100-day moving average.  If the index is trading above that level, the long-term trend is considered up; generally, the 100-day moving average is seen as a proxy for the long-term trend.

Benchmark	Symbol	Price	100-DMA	Market Trend
Dow 30	DIA	177.59	169.90	Uptrend
S&P 500	SPY	206.33	198.64	Uptrend
Nasdaq 100	QQQ	105.72	106.34	Downtrend
Russell 2000	IWM	112.48	106.80	Uptrend

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
Dow 30	DIA	177.59	178.29	Downtrend
S&P 500	SPY	206.33	207.34	Downtrend
Nasdaq 100	QQQ	105.72	109.36	Downtrend
Russell 2000	IWM	112.48	111.93	Uptrend

If the short-term trend is up, use bullish leveraged ETFs.  If the short-term trend is down, use inverse leveraged ETFs.