Market Direction – Up or Down?

My last post shows that reading the market is not so easy and may give rise to false conclusions about market direction. I stated in my last post that a 60 day chart of 4 hour time periods of the market gave a buy signal. And also the post before that shows a Bull Confirmed Status on the Point and Figure chart. However, the market has continued to tank going down dramatically so what is up with these buy signals?

The fact is the longer term direction of the market is down and the longer term direction rules! We said this at the beginning of the blog back in January. See here. So while the fast band of the GMMA indicator did get above the slow band on a chart using 4 hour time periods the longer time frames still rule, i.e., the daily, weekly and monthly time frames. And since Friday was the last day of the month we can now look at what other time frames are telling us: the monthly, weekly, and daily.

I want to develop a charting graph that displays this in graphical form. I have an idea that would display price movement in graphical form showing something similar to the following diagram:

While the above graph is only very approximate it still displays the point that the longer term direction of the market is down.

How then is one to trade the market? It depends on your time frame. Then trend is your friend until the end when it bends. Since I trade longer time frames I am looking at the monthly direction (a market close above or below the SMA 12) as my guide to the direction of the market. Obviously, before a change can occur on the monthly level and weekly and daily change will have to occur first. We will look at these relationships in the days ahead.