Is It Time To Buy? - John Rothe | Portfolio Manager, Quant, Tech Geek, And Sometime Superhero To My Kids

Is It Time To Buy?


Not yet – the US stock market is still in a downtrend and we will probably start to see the market reverse back down soon. The S&P 500 is still trading downward in an orderly fashion within its trend line. In addition, the MACD is still negative and not near a crossover point (which traders will interpret as a buy signal).


For those who are not familiar with the MACD:

Investopedia explains Moving Average Convergence Divergence – MACD
There are three common methods used to interpret the MACD:1. Crossovers – As shown in the chart above, when the MACD falls below the signal line, it is a bearish signal, which indicates that it may be time to sell. Conversely, when the MACD rises above the signal line, the indicator gives a bullish signal, which suggests that the price of the asset is likely to experience upward momentum. Many traders wait for a confirmed cross above the signal line before entering into a position to avoid getting getting “faked out” or entering  into a position too early, as shown by the first arrow.2. Divergence – When the security price diverges from the MACD. It signals the end of the current trend.3. Dramatic rise – When the MACD rises dramatically – that is, the shorter moving average pulls away from the longer-term moving average – it is a signal that the security is overbought and will soon return to normal levels.Traders also watch for a move above or below the zero line because this signals the position of the short-term average relative to the long-term average. When the MACD is above zero, the short-term average is above the long-term average, which signals upward momentum. The opposite is true when the MACD is below zero. As you can see from the chart above, the zero line often acts as an area of support and resistance for the indicator.

 

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