Friday Sept 7 2012
A reader has asked about our use of multiple MAs. Good question, here is the source of the calculations.
Near every computerized stock charting program has default settings of 50 and 200 bar MAs. These remain fixed even if one adjusts to an hourly or weekly from a daily chart. Most quantitative trading programs use these same MAs to prompt trading signals. If the 50 day MA crosses above the 200 day MA that for example would issue a buy signal.
I have subdivided those two as follows.
50 + 200 = 250 /2=125
125 + 200 = 325 / 2 = 167 (whoops I think the chart reflects 162 but close enough)
50 + 125 = 175/2 = 87
So the additional MAs are simply an average of other MAs shown on the chart. Another format uses Fibonacci numbers to generate Mas such as 8,13,21,34,55. It has been interesting to observe that the markets often bounce off these intermediate MAs in an uptrend or fail there in a downtrend.
Stuart in his post makes a good point about Googletrends. Bob Prechter's warnings about a toppy market are of less interest to the mainstream as the market moves higher. Additionally searches about market top or economic downturn are of less interest. This is occurring as money exits the Safe Harbor of bond funds and re-enters the risk on environment of stocks and commodity trading.
The so called jobs report this morning claims 96,000 jobs created, whatever that means. Mish on his site makes the point that it would take years of creating 200,000 jobs to return to 6% unemployment. The real relevation is that the total number of jobs decreased by 366,000 if I heard correctly. With 47 million on food stamps it is clear many have simply given up looking for work and are adjusting their lifestyle to various entitlement programs as well as lower paid jobs.
Yesterday's 200+ point move up in the Dow simply reflects what we have been predicting here. Note that the Euro is now over 1.25
This ribbon of MAs gives the viewer a better feel for developing trends. Note the shortest MA is flattening as price has moved over the two shortest MAs. The next obvious challenge is to vault the last failed high around 127 in mid June. It will happen but may take some backing and filling here as the various MAs flatten and then beging to converge.
Charts are a living breathing photograph of the millions of decisions made in world markets every day.
The mirror image is here.
The markets are not Olypmians. An Olympic marathoner will maintain a steady average for each mile covered. The rest of us will sprint and then need a breather slowing down before speeding up again. That is exactly what the summation index has done after its spring from the June low to the July high. In the upper panel one can see that Relative Strength is finding support at the 50% level. This is the preparation for the move to new highs in stocks that most have doubted. The explosive move in stocks yesterday is signalling that the markets are readying for an assault on the old highs.
Thanks for reading The Market Perspective. We hope TMP has assisted your investing success.