How to See the Big Picture of the Market Direction Before It Happens

How to See the Big Picture of the Market Direction Before It Happens

Today we are going to discuss weekly charts. Weekly means that each candle on the chart represents the price movement of 5 days or the current number of days to the point you are looking at the chart. The chart can cover a period of years or up to a few months.

 

Overall, the weekly chart helps to determine trends and market strength. This chart is for the DOW as a whole.

 

Again, each candle contains the price movement of 5 days, Monday-Friday or the current week.

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The Chart has 3 weekly EMA lines- 8 weeks, 21 weeks and 233weeks- EMA. When the 8 EMA crosses up or down over the 21 EMA, it is significant and when those lines cross above or below the 233 EMA adds even more importance.

 

Notice in March of 2020, the candles dropped below the 233 EMA and yet the 8 EMA stopped just above the 233 EMA and then the candles stopped their drop and turned back up to start a new upward trend that lasted until January 2022. There was a little back and forth movement here and there, but the overall upward trend lasted for 22 months. The pink 233 EMA line acted like a floor and stopped price from dropping further.

 

In January of 2022, the 8 EMA crossed down below the 21 EMA and a new downward trend started that lasted until October when the 8 EMA crossed back up and over the 21 EMA. Notice the turn back up again happened when the candles and 8 EMA got close to the 233 EMA. The 233 EMA acted like a floor that price had trouble passing through. There were two attempts where the candles and 8 EMA rose and tried to move above the 21 EMA, it didn’t happen and price pulled back again as if the 21 EMA was a ceiling and the 8 EMA bumped its head.

 

In November, the 8 EMA crossed back above the 21 EMA. It rose through October and November and since then, it has had little swings, but has primarily gone flat. The current period has been bullish, but with little energy, so it has created little swings up and down with no real gains.

 

Look at the last 6 weeks, the candles create a straight line.

 

I drew some rough pink lines under the areas of the trends. Look to see what color line was on top. Red or blue? If the red one was on top, price is dropping. If the blue is on top, price is going to rise. The EMA lines are telling you a story.

 

I am going to post another chart of an equity without any pink lines. I am quite sure at this point you can quickly determine the trend and what is happening with price this week.

stockcharts

Price is head up, right? It has been flattish for 3 weeks and it is starting to rise. It, also, might rise to about the R1 pivot point we have discussed these lines in the past, where it might then bump its head and pause its rise for a bit. Also, notice the previous all time high was very close to the R1 level. It might real bullish strength to push through and above that high level.

 

Also notice that these charts represent 2 different equities. One is the overall DOW and the other is Lowes, the hardware store, and yet the charts are similar. They aren’t exact and yet, what happens in the overall market has a strong influence on what happens to individual companies.

 

One of the key factors of chart reading is for the chart to tell you a story about price. You come to understand previous highs, lows, general trends, tough areas to get through, ceilings, floors, and previous gathering spots.

 

My goal is to teach everyday people how to trade options, to learn to read charts, and while they are learning, they can participate in a program like ALPHA that trades the daily charts of equities like Lowes (LOW). I think of this as an earn-while-you-learn program that is perfectly suited for people who are interested in learning to trade options as well as have the opportunity to earn a profit as part of the learning process.

Want to discuss market direction further with expert strategist Wendy Kirkland? Contact FFR Trading today!

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