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.


right click graph for enlargement options

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