Determine Market Trend (3 Jun 16)

Moving averages help identify trends and find areas for entering trades.  When the SMA rises, it shows that the crowd is becoming more optimistic and bullish, which is a good time to be long.  When it falls, it shows that the crowd is becoming more pessimistic and bearish.

Short-Term Trend

When the stock trades above the 20-SMA, it is considered to be in a short-term uptrend.  When it trades below the 20-SMA, the short-term trend is considered down. 

Benchmark	Symbol	Price	20-SMA	Market Trend
S&P 500	SPY	210.28	207.37	Uptrend
Dow 30	DIA	178.06	176.99	Uptrend
Russell 2000	IWM	115.97	112.20	Uptrend
Nasdaq 100	QQQ	110.06	107.58	Uptrend

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

Intermediate Trend

The 50-SMA is considered a measure of the intermediate trend of the market.  This one is very important for market timing and is often used as a place where you enter the market.

Benchmark	Symbol	Price	50-SMA	Market Trend
S&P 500	SPY	210.28	206.97	Uptrend
Dow 30	DIA	178.06	177.44	Uptrend
Russell 2000	IWM	115.97	111.71	Uptrend
Nasdaq 100	QQQ	110.06	108.27	Uptrend

When a stock trades above a rising 50-SMA it may be in a stronger, more mature uptrend.

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-SMA	Market Trend
S&P 500	SPY	210.28	200.03	Uptrend
Dow 30	DIA	178.06	171.16	Uptrend
Russell 2000	IWM	115.97	106.98	Uptrend
Nasdaq 100	QQQ	110.06	105.52	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.