Saturday, May 18, 2013

Looking at the market as roulette

Sometimes it's fine to look at the market as a gambling place.
Let's look at S&P500 index. Beneath is the chart of that index together with the line showing how many days were up during 20 days periods. Simply talking  - as the market is in an uptrend there should be many days when the daily closing prices are higher than preceding day. That's quite obvious definition of any uptrend. The opposite is also correct - during down trend  there are less days when closing prices are higher than preceding day (there are more down days).
While the up trend is developing so is the number of up  days. Nothing special.
But...when the trend is weakening we can spot it  - the number od days up is diminishing.

O.K., let's look at the chart:

As you can see, looking at the number of days up we can easily spot the strength of the trend. Most recently the up trend in US stocks seems to be strong - the number of up days goes with the index - no divergence.

But let's look at the gold prices. Here is quite different situation - the price of gold is going down abruptly while the number of up days is going up strongly. It seems that the change of the down trend is in the making.....



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