Determine Market Trend...
What is Market Trend?
A market trend is a assumed tendency of a financial market to move in a particular direction over time. Trends are always derived considering a particular time period. Here we will be looking at Market Trend over several weeks to months. We will be more interesting in looking at periods when we can expect change in Market Trend.
Why do we need to know change in Market Trend?
A market trend is a assumed tendency of a financial market to move in a particular direction over time. Trends are always derived considering a particular time period. Here we will be looking at Market Trend over several weeks to months. We will be more interesting in looking at periods when we can expect change in Market Trend.
Why do we need to know change in Market Trend?
- It tells us if we are entering BULL or BEAR market
- We can be better prepared in managing our portfolios
- It is not a timing tool but rather can act as an additional tool for better judgement
Market Trend Analysis
We performed an analysis of NYSE market trend using cumulative NYSE Advance Decline Volume Index. Following slide show can illustrate a very interesting characteristic. Every time NYSE Advance Decline Volume Index [$NYUD] crosses EMA(150), its a possible indication of change in market trend. The interesting thing to watch here is, check out how MACD indicator (in middle of the chart) trend changes right before the market trend change happens. This tells us weather we are in BULL market v/s BEAR market.
The last slide "2008 - Current" suggests following:
Current chart can be found here.
Things to remember:
- MACD trend is down while market keeps going higher, which shows divergence and a possible trend change in works.
- NYSE Advance Decline Volume Index crossed EMA(150) suggesting a possible market trend change, but is it confirmed yet ???
- Won't we bounce from here just like 2010 June-July, when market came close to a possibility of trend change ??? In 2010, we got QE2 package (quantitative easing) from FED which allowed market to rally further and avoid trend change.
- There is NO sure way of knowing what will happen at this juncture but coming weeks will reveal this as time progresses....
Current chart can be found here.
Things to remember:
- Above charts are "weekly" charts and hence long term market trend indicator
- This is not a timing tool but provides a good observation of where market might be headed for next few months
- Many other indicators are out there but we chose to use this one for our analysis
- It is good to be cognizant of our surroundings and expect possible/probable outcome