Featured below is an article from the VantagePoint Strategies Newsletter. The author, Darrell Jobman,is Editor-in-Chief of TraderPlanet.com. Darrell has been writing about the financial markets for over 35 years, and was an editor for Futures Magazine for over 15 years. He has also written and/or edited multiple books on trading, and has a passion for helping other traders succeed.
Do you know when the latest stock market advance is going to break? Or do you know when that advance is going to catapult into a real bull market?
Neither do I. I have heard convincing arguments for both the bull and bear cases for the stock market. The bulls have been in the driver’s seat for the last few weeks, making a run for the 1000 mark in the S&P 500 Index. But when you look at the big picture, the latest rally is barely a blip on the chart below (red circle), and the market has a long way to go to reach even the 50% retracement area of the November 2007 high to the March 2009 low.
Source: VantagePoint Intermarket Analysis Software
To see more FREE recent market predictions for indices go here!
Just a few short weeks ago, traders were talking about the head-and-shoulders top they envisioned on the S&P 500 e-mini chart below. But that formation failed when the market could not break through the neckline (red dashed line) decisively and shot above the shoulder highs around 925 and then the head highs just below 960.
Source: VantagePoint Intermarket Analysis Software
To see more FREE recent market predictions for indices go here!
Now, instead of a head-and-shoulders top, some analysts see a head-and-shoulders bottom forming if we zoom back out and take a little longer look at the market (see chart below). Breaking above this neckline projects a move to the 1225 area (the distance of the head to the neckline of roughly 285 points added to the neckline breakout point).
Source: VantagePoint Intermarket Analysis Software
To see more FREE recent market predictions for indices go here!
Those seem like some lofty goals for an economy still trying to recover and coping with up-down economic reports regarding jobs, housing, consumer confidence and other fundamental factors.
So how can a trader handle situations of uncertainty and volatile price swings? The first thing to notice on the S&P 500 chart is that the market has posted a succession of up days that is rather rare and would seem to be vulnerable to a correction. No market goes in one direction forever, and some setbacks seem inevitable.
In this example, that means a trader would need to be prepared for a downside move. VantagePoint Intermarket Analysis Software has several indicators that can help you get positioned for that move.
The first is the predicted moving average crossover. On the chart below, the red circled areas indicate where the predicted medium-term exponential moving average of typical prices (blue line) moved above the actual medium-term moving average (black line) in mid-July. At the same time the predicted moving average was turning up (top red circle), the predicted moving average difference indicators (green and blue lines in lower panel) were angled upward and the Predicted Neural Index was at 1.00 – all bullish indications.
Assuming you took a position based on those clues, you would still be long, taking advantage of the market’s rise even though you might have been dubious about the market’s fundamentals. Then comes a different situation (1). The S&P 500 e-mini appears to be rolling over and a candle that looks like a doji suggest a top could be in place (green circle). In addition, the predicted difference lines have turned down (2), indicating the strength of the trend is fading, and the Predicted Neural Index (3) has dropped to 0.00 – bearish clues.
Source: VantagePoint Intermarket Analysis Software
To see more FREE recent market predictions for indices go here!
But that still doesn’t answer the issue of precisely where you want to get on board a new trend. You don’t want to sell too early if the uptrend express continues on its way; you don’t want to sell too late and miss out on profit opportunities if the market does fall.
VantagePoint’s predicted next day’s high and predicted next day’s low can be quite useful here. On the chart below, see how a stop placed 5 points above the predicted next day high (gold line) would have gotten you into a long position around 892. When in the long position, a stop 5 points below the predicted next day low (the pink line) would have provided protection for the long position, moving a trailing stop up to 5 points below the predicted next day’s low each day.
But that is history – too late to consider a long position with this strategy. After a runup like this, you should now be thinking about a trend reversal to the downside.
The predicted next day high and low for July 30 are shown in the red circle. Putting a sell stop 5 points below the predicted next day low, you would either remain long if the market does not drop or you would get short at 964 – 5 or 959 (rounded off), based on the predicted next day low after the data download on July 29. If you get short in that area, your protective stop would be 5 points above the predicted next day high for July 30 or at 986.
A spread of 27 points ($1,350) may be more than you can accept so you might use the previous day’s high or some other criteria for your stop. If the market does decline, the predicted next day high should also come down for a more palatable stop point.
Source: VantagePoint Intermarket Analysis Software
To see more FREE recent market predictions for indices go here!
In today’s markets when short-term price swings can be quite volatile, you may want to trade multiple contracts and set targets to take profits, as described in previous articles, leaving a smaller position to ride out the duration of any new trend that might develop.
These are just a couple of ideas how VantagePoint indicators can be helpful. A little experimenting can refine them to fit your trading style.
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