There’s little debate that the NAZ was due to correct. The index hadn’t had a significant correction to the 50 day MA since mid-October –the index was looking a bit parabolic. Momentum indicators have been rounding over on the daily chart as they have on every minor correction for this index. So the current pullback was expected. Beyond a near termed correction, the trend remains bullish, with firm support above its key MA’s and its rising trendline.
The NAZ chart demonstrates how the MACD indicator can help us spot short termed bull and bear cycles on any timeframe within a trending security. The MACD histogram in particular can act as a leading indicator for market cycle changes. When the histogram begins diverging down, this shows us that the market may begin to turn down shortly; when it diverges up, it often signals a pending rally . When the histogram crosses the “0” line, this can be used as a signal to time our trades. Use the MACD on the daily chart to spot near termed corrections and rallies if you are a short termed trader. Use the weekly chart with the MACD histogram to spot the more significant entry and exit cycles if you are an investor rather than a trader. Pay particularly close to “0” line crosses if it agrees with a major crack of support/resistance or a trendline. Please note that MACD, like any indicator, is just one more piece of evidence. It should never be traded on exclusively. You will find plenty of false signals on this, and any indicator – so use the chart formation first before making a trading decision.
Note the MACD divergences on both the daily (below) and weekly (above) charts. The MACD histogram began moving down (diverging) against the index in late December on the weekly chart – an early warning of a correction pending. The daily MACD has crossed below the “0” line, but the weekly remains above it. As noted above, the trend remains bullish. This suggests more near termed pressure for the index, but nothing to be concerned about for intermediate-termed traders.
Upcoming events with Keith Richards
BNN television MarketCall tonight: Tuesday January 28th, 6:00pm EST. Phone in with your questions on technical analysis during the show. CALL TOLL-FREE 1-855-326-6266. Or email your questions ahead of time (specify they are for Keith) to email@example.com
Oakville public library: Thursday January 30th, 7:00pm EST. Free admittance, Keith will discuss technical analysis strategies from his book Sideways
Orangeville public library: Tuesday February 4th, 7:00pm EST. Free admittance, Keith will discuss technical analysis strategies from his book Sideways