Ok so whether you are new trader or a veteran, this analysis of the S&P500 is for you. It is always important to know where the overall market is trending so that you know if you are working in sync with the current or working against it. Trading is like swimming if you are going in the natural direction of the flow of water or in this case the market, then everything is easier, more trades are working for you and naturally if you are swimming against a current, you are working much harder and no matter how hard you try the current will push you in the opposite direction until mother nature instructs it to do something different.
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This 6-month chart of the S&P 500 as it sits before the open on 1/23/2012 shows a strong uptrend. So let’s dive into it. In the previous 6 months the S&P had been plagued by the 200-day moving average (MA – the Red Trend Line). The S&P on several occasions as indicated by the arrows could not close above or stay above the 200-day MA. Then on Jan 3 we had a game- changing day, a rally above the 200-day MA on increasing volume that never looked backed.
Now let’s look at the other indicators. The 50-day MA (Green Line), the 20-Day MA (Aqua Blue), and the 10-day MA (Royal Blue) line are all angling up with a Bullish cross (see bullish trend change on chart). So what does this mean to you seeing the Bullish trend change. It means the average number of investors over the last 50, 20 and 10 days all owned the stock around the same price and as new buyers came in (i.e buyers over the last 10 days, hence the 10 day moving average) they decidedly were willing to pay more for the collection of stocks in the S&P 500 thus sending the trend of the overall market up and up strong enough to break past the 200 day moving average that once plagued the index.
If you also take a look at the secondary indicator “Cash Flow Accumulation” which is a measure of cash pouring into the index or out of the index you can see that cash is pouring into the index, which is also confirmed by the increasing green volume bars.
I am not saying dive headfirst into buying every stock you can find but what I am saying is there is no denying we are in atleast for now an uptrend and there should be plenty of stocks moving in that direction with great trading potential.
you know what they say about a trend… well “the Trend is your friend.”
-Jason Brown- Stocks & Options analyst