How to spot if the market has changed its trend

Posted by Stephen Sutherland on Wed, Nov 19, 2014 @ 01:30 PM

This information is taken from The Big Picture, to download a sample copy please just click here.

NASDAQ follows through

On Tuesday 21st October, the NASDAQ Composite surged 2.40% (Point G) in above average volume (Point H). This was the US technology indexes’ best one-day gain so far this year.

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Coupled with a solid increase in volume, the US technology index made a ‘follow-through’ signal, which changed our short-term outlook at the time from neutral to bullish. The follow-through is the best signal that a new market uptrend is underway.

At the time, William O’Neil’s website, had this to say: “The magnitude of the move was compelling. Gains were far stronger than in the previous four follow-throughs, which occurred on 13th August, 27th May and 11th February 11 this year and 16th October last year. Indexes on those days rose 1% to 1.4% and led to decent gains each time.”

Clear sign of trend reversal

When we analysed the market on Thursday 30th October 2014, the NASDAQ Composite had had nine up days in eleven trading sessions (Point I). This in itself was a clear sign that the trend of the market had recently changed from down to up.

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The action over those two weeks also signaled that the market was more likely to go upwards but, to officially end the NASDAQ’s correction, it needed to get back above (and stay above) the resistance at 4611 (Point J).

Bullishly guarding recent gains

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When we took a look at the NASDAQ Composite’s activity on Friday the 7th of November, the index behaviour was positive. The NASDAQ gained 0.38% (Point K) in average volume (Point L). Advances in average or above average volume indicate that institutional investors are accumulating stock – a bullish sign. This up day helped the US technology index regain the previous two days losses.

It was also constructive to see the NASDAQ come down and successfully test the recent breakout level of 4611 (Point M). From here we’d like to see it continuing to bullishly guard the gains it’s made since the 16th of October 2014 (Point N) by either shuffling sideways or continuing its advance in decent trade.

This information is taken from The Big Picture, to download a sample copy please just click here.

As always, if you have any questions or thoughts on the points covered in this post, please leave a comment below or connect with us @ISACO_ on Twitter.


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Topics: Investment strategy, Investment news