Monday, October 10, 2011

Market Watch

The Dow Jones Industrial Average is up 280+ points intraday, prompting the usual after-the-fact flood of emails touting the new bull market. ( I mean, where were these people on Sept. 3, when the most recent rise began?)

After taking a deep breath to regain my equilibrium after such heady fare, I'll break from my normal habit of using the S&P 500 exchange traded fund SPY as my vehicle for analysis. Instead, I'll look directly at the DJIA.

sym phase trend adx   200/50 40/10

First, the 10-day average true range -- how far the daily price moves -- is at 279, so a price move of 280 is simply normal behavior for the index at this point in history. Back in July, the range was around 140, so, yes, volatility has increased. But we trade in the now, not in the yesterday, since times past are beyond our reach.

Secondly, a move that began July 22 carried the price from 12,741 down to 10,604 on Aug. 9. So Aug. 9 is our base point.

Since that date, the price has zig-zagged up to a series of lower highs and trend-ambiguous lows, that bottomed at 10,404 on Oct. 4. The subsequent five-day (so far) rise has carried the price to today's high (so far) of 11,395, a new post-decline higher high.

A price channel clarifies the analysis. Sept. 1 at 11,717 is the new post-decline high. Drawing a channel from that point to the next significant high, Sept. 20 at 11550, sets up the upper boundary of the channel. The lower boundary is set at the subsequent Sept. 12 low, at 10,825.

After the first reversal, the upper boundary has been touched twice, on Sept. 20 and today. Today's high is lower than that of Sept. 20.

To call the Dow as being in a bull move, I would have to see a significant and persistent breakout above the channel, better yet, one that exceeded the Sept. 20 high of 11,550, and best of all, one that exceeded the Sept. 1 high of 11,717.

Only then could I call it an uptrend, and it would be nice to have a higher low to confirm it. But as a practical trader, I'll take a breakout above 11,550 as a new trend. Coincidentally, that level marks the 20-day Donchian price level, so a breakout would also constitute a change to bull phase.


  • phase: 20-day price channel phase, with green for bull trend, red for bear trend and yellow for neutral trend.
  • trend: Price direction, green for higher highs and higher lows, red for lower highs and lower lows, yellow for neither.
  • adx: Average directional index location, indicating the strength, or the temperature, of the trend. Orange for 40 or greater, aqua (light blue) for 25 and up but below 40, magenta (light purple) for 20 and up but below 25, and brown for anything below 20. (Mnemonic: Orange for the overhead sun, blue for the surrounding sky, magenta for sunset on the horizon and brown for the earth.)
  • 200/50: The moving average cross, green for the 50-day ma above the 200, red for below and yellow for closely aligned.
  • 40/10: The moving average cross, green for the 10-day ma above the 40, red for below and yellow for closely aligned.

About my trading methods

Read a detailed explanation of my analysis method, including trading rules.


Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

The trader’s greatest sin is inaction. Sleeper, awake! Seize the Nietzchean moment. Roll out of bed and trade.

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