First, identify direction and pattern of highs and lows by S&P500, NASDAQ and the DOW charts.
Six month snapshot of : INDU (dow), COMPQ (nasdaq)
First, look on the trend which is connecting the lines of the highs and connecting the lines of the lows and after that you should look on the moving average, since it lags the trend.
Second, confirm trend and recognize the movement of different investor groups by market forecast graphs.
Graphs of : momentum -1-2 days, Near term -3-10 days and intermediate for weeks and months. This shows trends but also level of risk because we see the three graphs.
Overbought above 80 - may move lower. When all three signals in this area on the same day, it is a bearish signal. Move stop losses higher to protect gains. You should also check sentiment indicator because the trend can be weak if the sentiment is bullish.
Oversold below 20 - may move higher. When all three signals in this area on the same day, it is a bullish signal.
Clusters happens 8-15 times a year.
Third, identify market long term condition by recognizing the market mood through market sentiment graphs.
When sentiment is up search bullish opportunities. That is the time to buy growth stocks and mutual funds.
When it is down - protect your positions
There are 3 short indicators:
30 days simple moving average.
Moving average converge -divergence (MACD)
Stochastic indicator.
Combine the green arrows on the short with moving up sentiment line and the red arrows with the moving down sentiment line.
The move have to be in the center area between 20-80!
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