The Dow, Nasdaq, and the S&P 500 are all anticipating a rally to start the week, but it looks like they are expecting something else. There’s no reason to fear though, especially if you have some fundamental and technical information to guide your strategy.
We’ve seen this scenario play out many times before, and the Dow, Nasdaq, and the S&P 500 are anticipating this trend to start next week when the US dollar pulls back to support. If you want to trade based on emotion, this is a good time to let go and try a different approach. If you’re one of those people who believes the markets and the economy can’t be manipulated, I have a simple suggestion for you:
Look for a technical indicator to help you make your decision. There is actually an indicator called MACD (Moving Average Convergence Divergence) which works by comparing two or more price charts in one chart to help determine where the market is headed. MACD’s are very helpful indicators because they break down technical indicators into two parts, or band widths. This allows you to get a better view of what the market is really doing. When you look at one of these bands, you are then able to put the moving averages together in the right way to predict where the market will head next.
The MACD has a number of different styles available, depending on what you want to look for in a technical indicator. One way you can use it to your advantage is to look for a band that has a wider range, and/or a shorter duration than it should. When the market goes up the MACD’s range will be higher, and the length of time between the open and close of the band will be shorter.
A negative divergence can happen when the MACD range is lower than the Dow, Nasdaq, and the S&P 500, and this can cause the market to go down. A positive divergence is a little different, where the MACD band is slightly above the other two and it causes the market to move up. This is the most common for these types of divergence bands, and gives you a good indication of where the market might be heading.
If the US dollar continues its recent decline, we may see a reversal in momentum from the S&P 500 and the Dow, Nasdaq, and the MACD and even the EUR/JPY, which may cause a mini pullback in prices. If this happens, you have a strong opportunity to sell and ride out the correction and try to put in profits with short covering.
Keep in mind that the US dollar usually bounces off of a low, and if the dollar keeps falling off a high, then it’s going to pull back lower. When you use a bullish breakout to buy right around this point, it can provide a large profit if you have a good entry point, or at worst an even larger loss if you decide to stay away.
If you have a weak open and a strong close, and there is strong upward momentum on a bullish breakout, this can bring about an even larger profit. It may even be possible to double your initial capital.
You can use this type of trend analysis to predict where the market is likely to go over the long term basis. I suggest that you don’t get too attached to the MACD band because it does go up and down, but you should be able to see some trends which may indicate the market is about to break out in a strong direction. This way you can either invest heavily in the market or you can put it on hold and wait for it to go up again, in the end.
As the US dollar pulls back, this kind of breakout can put pressure on the other markets and cause them to crash as well. The key thing to watch for here is whether the markets are oversold or depressed, and whether or not they are moving sideways.
So if you have any chance of making a profit on a dow, Nasdaq rally as us dollar pulls back, and you have been successful before, you should continue to do so. You should also consider this information before you enter the market, because in a few months the US dollar will again be moving in a strong direction, so be prepared.