Nicholas Carr’s, “The Shallows”, is a good read and convinced me to update this series to a more concise format. Ideally there will still be attention worthy analysis captured via:
- More bullets (check)
- More tables
- More images
As a re-cap to the commentary over the last month, the main themes were:
- Remember to periodically look at the bigger picture.
- Recognize when outside commentary represents noise.
- Have objective tools that can help ground you.
- Always, always keep you personal style in mind.
With some earnings reports exceeding expectations from some big name companies and a reasonable number of headlines regarding improving economic conditions, it’s not surprising to see market fears subside a bit as the CBOE Volatility Index® (VIX®) dropped back below its 50-day exponential moving average [EMA].
The chart view in Figure 1 reminds us, we once again return to an area of previous support for the index suggesting we’re not out of the woods quite yet.
Figure 1 Weekly VIX® Approaching Support Near the 15.50 Area
A similar big picture view of the weekly chart for the Dow Jones Industrial AverageSM (INDU) with an upward trending linear regression channel in Figure 2 displays:
- A continued bullish move from the 2009 low,
- Difficulty for the current intermediate-term move to surpass the middle regression line, and
- Declining volume.
Figure 2 Weekly INDU with Upward Trending Linear Regression Channel & Volume
Since the current intermediate-term move is still underway it’s certainly possible another surge upward could get INDU above that middle channel line. Does that matter? To e yes, but you have to decide the impact for you.
One way to ground an analysis is to assess the direction of a simple moving average [SMA] that is well-suited to your preferred timeframe. Commonly used settings for this assessment include:
- 20-day SMA (short-term trend)
- 50-day SMA (intermediate-term trend)
- 20-day SMA (long-term trend).
Figure 3 provides a daily chart from January 2009 to April 2012 with the 50-day & 200-day SMAs.
Figure 3 Daily INDU with 50-day & 200-day SMAs & Volume
While difficult to view in this compressed mode, both SMAs are trending upward so if you subscribe to such a basic objective analysis, the intermediate-trend and long-term remain bullish. However, they are doing so at a slower rate (subjective). What settings will keep you grounded over your preferred time horizon?
Please feel free to let me know if this new format is positive or negative.
Clare White, CMT
Contributing Writer and Options Strategist
Optionetics.com ~ Your Options Education Site
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