Friday, May 14, 2010

The Significance of Moving Averages.

Moving averages can reveal a lot about the structure of the market.
  • When the 21 day exponential moving averages crosses its 55 day counterpart, the previous move in the market before the shorter average began to approach the longer term MA--point 3 on the chart, can be considered terminated.
  • When the 21 day ema crosses back above the 55, the corrective wave (4 on the graph) can be considered terminated.
Moving averages can act as a guideline to what length of cycle the analysis is applicable to.
  • 21 d ema : short term daily cycle
  • 55 d ema : predominant weekly cycle
  • 200 d ema : major trend: Bull or Bear Market.
  • Moving Averages act as support resistance levels as well as setting the base for cycle projections.
When moving averages converge at Energy Dates (May 17-19) significant trend setting action often occurs. (i.e. onset of a new structural wave.)
The moving averages are telling market participants to be especially mindful of the price action during the next 4-5 trading sessions. Watch for the market to establish a trading range either above or below the MA convergence. If the market trades below the moving averages the 200 day will be tested next.

INTERESTING TIMES

right click graph for enlargement options

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