Market Mood Answers

Chart 1 is a GO sign

Chart 2 is a STOP sign

Chart 3 is a GO sign

Chart 4 is a GO sign

Practice Reading the Market Mood

Here you can get practice reading the market mood for yourself. (If you want to see Toni and Gordon’s current read of the market, go here.)

Reading the market mood is quite simple once you get used to the charts. The two important conditions you must observe are as follows:

1) The comparison between the S&P 500 index and the Dow Jones Utility Stock index.

For this condition you are trying to answer this question: which group of stocks to investors appear to prefer more right now, utility stocks or regular stocks? You must compare the difference between these two indexes over the last two months on a chart that shows a year of data or more. The two possibilities are that either utility stocks are doing better or that the S&P 500 is doing better.

2) The general trend of market volatility.

This condition tracks whether market prices are changing with a greater degree of fluctuation. To determine this you will track the Average True Range (ATR). You must observe the general slope of the ATR and try to determine its trend over the most recent two months. The two possibilities are that the ATR is rising or falling.

Once you have identified these two conditions, then you can use the combination of them to tell you whether the market is giving a GO or a STOP sign.

GoSignGO sign (price has crossed above the 12-month moving average)

Condition 1: The S&P 500 index is outperforming the Dow Jones Utilities Index over the past two months

Condition 2: The ATR is falling over the last two months.

 

StopSignSTOP sign (price has crossed below the 12-month moving average)

Condition 1: The Dow Jones Utilities index is outperforming the S&P 500 Index over the past two months

Condition 2: The ATR is rising over the last two months.

 

Now for some practice.  Below are four sets of charts. See if you can determine whether each chart is showing a STOP sign or a GO sign.

Chart 1:

ChartPractice1

 

 

Chart 2:

ChartPractice2

 

Chart 3:

ChartPractice4

 

Chart 4:

ChartPractice3

 

Answers Button

 

Welcome Readers!

From the both of us, Toni and Gordon, we want to say thank you for purchasing this book. It has been a labor of love born out of our work with students over the years. We hope that in the pages of this book you will find low-maintenance ideas for growing your retirement savings over the years in a safe and sane manner. This book isn’t about playing the speculation game, it is about making your money grow on a steady basis. Please feel free to leave your comments on your impressions of the book.

We wish you all the best and hope that every investment you make is a winner!

Toni Turner and Gordon Scott, CMT.