Let’s talk a little
about fear – and the length of trends.
We’ll deal first with trends
from a trading perspective. From an investing perspective,
trends are easy … you just put two or three moving averages
onto a chart, say a 5, 12 and 72, and so long as the 5 stays above
the 12 and the 12 stays above the 72, you
relax and stay there for the long haul.
Trading requires more work.
First of all we have to decide whether the primary trend is Bullish
or Bearish. Bullish is the 5 above the 12 above the 72 –
and they’ve been that way for quite a while. Bearish is the
reverse.
Then there’s the secondary trend.
It’s possible to have a Bearish secondary trend within an
overall Bull trend – which would be the 5 sinking below the
12, but the 12 usually staying above the 72.
And it’s also possible to have
a Bullish secondary trend within an overall Bear market –
which would be the 5 rising above the 12, but the 12 staying below
the 72.
Now, trends break down even further
than this.
First of all we have first degree
trends, which last from 1 to 4 days.
Then we have second degree trends.
Normally, if a trend can move past the High (or Low) of the 4th
day, it will continue moving in that direction for between 9 and
14 days.
If, at the end of 14 days, prices
continue moving in the same direction, we are normally looking at
a cyclic movement – and they tend to run a minimum of 30 days
and can move out as long as 90 days or even more without much more
than a few first degree
countertrends.
Yes, it does require some thought.
But, not a lot. If stock prices move in the same direction for more
than 4 days, they are likely to continue moving in that
direction for at least 9 days.
If they continue in that direction
for more than 14 days, they are likely to continue in that direction
for a minimum of 30 days.
This is worth noting because many
indices are at that point early this week – and they have
also reached key resistance levels. All of which means this …
we are at the point in many indices where they are vulnerable to
turning down again.
Let's take a look at New York’s
S&P 500
This is a daily chart and I am using exponential
moving averages at 5, 12 and 72.
Let’s look at this first from an investor’s
point of view. Last October, this index hit a new High – quickly
followed by the 5 crossing below the 12. This was a warning sign
– especially using the indicators we normally use on World
At Large charts.
Still, the long-term investor merely needed to
prepare for a possible downturn. But, a few weeks later, there was
a lower High, with only a brief cross of the 5 above the 12 –
another warning sign of developing weakness.
And then both the 5 and the 12 quickly dropped
below the 72. At this stage, the astute and careful investor sold
everything and moved to cash. And he did not get trapped into going
back in … because the 12 stayed below the 72.
The investor is still in cash – but is now
starting to pay attention again. Because … for the first time
since last year, the 72 has started to flatten – and prices
have reached the 72-day moving average for the first time since
the real plunge began.
He will wait for decisive positive crossovers from
both the 5 and the 12 – and will also consult other technical
indicators – and wants to see if prices turn down again this
week and whether they turn down for more than 4 days.
Now, let’s deal with fear –
the second most important ingredient of stock trading after greed.
We all know that since late last year Fear has
been waving a much bigger stick than Greed.
Broken banks, shattered consumer confidence, talk
of recession turning into depression, falling US home prices. Blah.
Blah.
This is the VIX … the volatility index …
a measurement of stock market fear...
We can view this index exactly as we
view stock indices. Those big, red spikes show the days of huge
price plunges. Prices went Down, Fear went Up!
And, as we can see, Fear has been
underlined by a rising trend since last June. What’s more
… it is now back at its rising trendline, as well as an important
Support level!
Oh, dear! What this tells us is that
we are right now at a potential inversion point – Fear could
rise this week … and prices could fall.
But. Take a closer look
at the indicators we normally use for prices...to
read more and view the chart, download the PDF file
CLICK
HERE to download
the full version of this report with all technical charts and further
comments. (PDF format)
The World At Large is delivered in advance to Astrological
Investing Premium Member subscribers. Randall Ashbourne
is a former journalist and political strategist residing in Australia.
*QHT Technical Charts created using Quick
Harmonic Trader Software, by P.A.S. Astro-Soft, Inc. makers
of Galactic Investor Astrology software.
***
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