| trend | adx | psar | pps | macd | macd trend | sto | sto trend | |
|---|---|---|---|---|---|---|---|---|
| SPY $105.43 | ||||||||
| VIX 40.79 | ||||||||
| TLT $99.20 |
At this point it can for the first time rationally be said that stocks are setting up for a downtrend.
Treasury long-term bonds were trading down intra-day after opening up at the top of Friday's trading range.
The so-called fear index, the VIX, opened 12.6% above yesterday's close, only to retreat sharply.
Using the exchange-traded fund SPY, which tracks and S&P 500, as a window into the blue-chips: The Feb. 5 low was $104.58. Today's low, so far, is $104.38.
The most basic form of technical analysis looks only at prices. If a stock is setting a series of higher highs and high lows, then it's in an uptrend, and the prudent trader will take bullish positions as appropriate. If a series of lower lows and lower highs, then it is a downtrend, and bearish positions are preferred.
The chart of the blue chips shows a series of higher highs and higher lows stretching back to March 10, 2009, when the downward slide prompted by the collapse of capitalist finance ended at $67.10.
Stocks rarely move in a straight line for any extended period of time. They trace a series of swings up and and down, and if the upswings are higher than the previous upswing, with the swing lows being higher as well, then the uptrend is in force.
The most recent upswing began on Feb. 5 of this year, at $104.58, and peaked on April 26 at $122.12. The question since then has been whether the downswing would stop above the Feb. 5 level. Today we know the answer: It will not.
Having said that, it will be impossible to say for a certainty that a downtrend is in place until stocks move up again and fail too exceed the April 26 level of $122.12. That failure would mean a lower high following a lower low: A downtrend.
It's also happens that an uptrend is composed of two subsidiary swings. Say, for example, that the present downswing stops short of the Nov. 2, 2009 swing low of $103.08, or of the Sept. 2, 2009, swing low of $99.57, and then moves up to top $122.12. In that case, the uptrend remains in force with a rather massive subdivided upswing.
Many people, hearing all of this, would say with a skeptical scratch of the head that technical analysts appear to be making it up as they go along.
In a way that's true, because tech analysis like any analysis seeks to impose abstract uniformity on endlessly unique events. However, the rules of analysis are consistent in their abstraction from events, so the discipline is fare more than the random guessing that informs market "analysis" in the popular media. (CNBC, AP, Reuters, MarketWatch: I mean you.)
Gerald Appel, the inventor of the MACD tech analysis tool, gives hard-earned wisdom on stock picking and the timing of tardes. A masterwork by a market master.
Indicator Exchange-Traded Fund Symbols:
EEM - emerging markets
EUR/USD - euro/dollar currency pair
GLD - gold
JNK - high-yield corporate bonds
SPY - blue-chip stocks
TLT - Treasury long-term bonds
USD/JPY - dollar/yen currency pair
USO - crude oil
VIX - fear index
Abbreviations:
- psar - Parabolic Stop and Reverse
- adx - Average Directional Index
- pps - Person's Proprietary Signal
- ma20 - 20-day moving average
- macd - Moving Average Convergence-Divergence
- sto - Fast Stochastic
About the glance: The colors indicate the state of each signal.
- trend: Determined by the 5-day moving average, green for up, red for down, yellow for sideways
- adx: orange for above 30-up, blue for 20-down, purple for in the middle. Red is most prone to whipsaws
- psar, pps, macd: green for bull mode, red for bear
- sto: green for overbought, red for oversold, yellow for the neutral zone.
New to private trading? Here's a look at How to Become a Private Trader.
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