Trying to time the market is a fool’s errand, but if you follow select technical indicators, you’ll know when the stock market trend is changing.
We are in the midst of a strong bull trend, when it feels like nothing more than a brief dip will stop stocks from going higher. If you hear someone trying to time the end of this bullish trend, they probably seem crazy.
But many in the financial media did try to do that during the dot.com era of the late 90’s. the stock market was rising every day without any resistance. Occasionally, a bear would appear on financial news crying foul.
I point this out because trader are often early to the party. Or late to the party. They hardly ever arrive on time.
This is because bullish trends take a long time to confirm. Traders who sit on the sidelines while the bullish trend is forming arrive very late and end up paying for their tardiness with higher stock and option prices.
On the other hand, bearish moves happen quickly. Most traders don’t believe they are more than a brief dip or that they will stick around. While it’s true a bear trend only lasts a short while, they are important to watch because when the trend starts to reverse, bulls have something to pounce on.
So when do you know the trend is changing for real and it’s time to change your strategy? Even if appears you are making a contrarian play?
These four indicators will tell you when a stock market trend is changing
As a technician, I am constantly reading charts and analyzing the indicators to understand what the markets are up to. If you can set aside your emotions, you will see a change in trend coming far faster than other traders.
These four indicators will help.
MACD (moving average convergence/divergence)
The MACD identifies the price trend and measures that trend’s momentum.
On a chart, the MACD appears as two lines: the MACD line and the signal line. When the MACD crosses above the signal line, that’s a buy signal. When it crosses below, that’s a sell signal.Â
Moving averagesÂ
Moving averages calculate the average price of a stock over a certain time period – 20 days, 50 days, 100 days, 200 days, etc. If the moving average of a stock is rising, it’s in an uptrend. If the moving average is declining, it’s in a downtrend.
New highs/new lowsÂ
New highs/new lows show how prices of individual stocks are doing. When a stock is consistently making many new highs and fewer new lows, the trend is bullish. On the other hand, when new highs start to fall and new lows begin to climb, the trend is turning bearish.
Bullish percentÂ
The bullish percent indicator isn’t discussed a lot, but it’s one I really like. It tells you how many stocks have a buy signal on a point/figure chart. The chart uses x’s to indicate prices rising and o’s to indicate prices dropping.Â
A key level to watch is 50. A cross below it could be considered rather bearish, while a cross above is bullish.
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I’n not saying this current bull trend is changing, but when it does, these four indicators will tell you.
