Assuming I’m not the only out there questioning whether the markets may peak in April this year as it did in 2010 & 2011, it’s possible you are contemplating a trend that is longer than your focus trend if you monitor the markets on a daily basis. With that in mind, it’s important to ask yourself, “Would a market peak in April even impact me?”
Two different factors can pull you towards trends that have no bearing on your personal plan:
- Different milestones in the markets such as the Dow closing above or below 13,000 tend to make it to mainstream media so consider your preferred timeframes versus what may represent short-term noise for you.
- Upon hearing of previous April peaks, friends, family and/or acquaintances may ask if it’s a good time to sell, shifting you towards trends that are longer than those you monitor.
Both cases highlight outside influences that can impact your ability to be true to your personal plan and style.
When the Timing May Matter
A trader may naturally be monitoring a timeframe that is a current topic of discussion because it fits within their preferred trading style. While discussing conditions it’s important for the trader to avoid becoming attached to that moment’s assessment. In other words, the trader cannot become so committed to the view that they feel they need to make a case for it after the discussion is over and new market data is available.
Once back in analysis mode, the trader may want to get a fresh perspective on the markets using basic objective trend indicators that are most consistent with their preferred timeframes. This can be accomplished using Simple Moving Averages [SMA’s] over the short-term, intermediate-term and long-term time horizon, and noting the trend for each.
Figure 1 provides a nice basic daily line chart for INDU that includes the most recent intermediate-term uptrend in place since October. The ProfitSource [PS] chart also includes:
- Volume Bars
- A 20-day, 50-day & 200-day SMA for price
- A 50-day SMA for volume
Figure 1 INDU Daily Line Chart with SMA, Volume & Volume SMA (6/8/11-4/19/12)
The most basic market assessment can consistent of objective trend identification using SMAs to keep you grounded in “what is” for the markets. Using Figure 1:
- The downward trending 20-day SMA indicates a short-term bearish trend.
- The upward trending 50-day SMA indicates an intermediate-term bullish trend.
- The upward trending 200-day SMA indicates a long-term bullish trend.
Introducing some more subjective commentary, the trader may note that both 50-day & 200-day SMAs are rising at less rapid rate suggesting a potential pause in the trend. This is supported by a very moderate decline in volume on an intermediate-term basis (50-day SMA declining).
Ideally this simple fresh look at basic trends will keep the individual focused on market action most relevant to their trading, not the economic news of the day.
Less Discussion and More Direction
Those wishing to prompt others to see for themselves can direct people to market data available on the public portion of the Optionetics site as follows:
- Select Overview from Market Data pull down menu on the Optionetics.com home page (Figure 2a).
Figure 2a Market Data Overview on Optionetics.com
- Click on the Market Snapshot chart found on the right side of the page (Figure 2b).
Figure 2b Market Snapshot on Optionetics.com
From this page users can explore broad market indexes or stocks.
Clare White, CMT
Contributing Writer and Options Strategist
Optionetics.com ~ Your Options Education Site
Questions for Clare? Please visit the discussion board on the homepage of Optionetics.com.