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:




Chart 2:



Chart 3:



Chart 4:



Answers Button


11 Responses to Practice Reading the Market Mood

  1. AL MARTINEAU says:

    Interesting book you wrote

  2. roger woitas says:

    I just bought your book today and have just started reading it. I really like it already-thanks

  3. John Hoth says:

    I may have found a wrong label on fig 4.8. Your talking about the DOW and the DJU but the lower cart is labeled ATR not DJU.. Am enjoying the book thus far. Just a lot to take in.. While reading I am trying to make a flow diagram of what I have taken in.. Sort of like a process flow…

  4. lisa says:

    the book I was looking for: relations between risk, ETFs and the market conditions, all framed in a logical methodolgy. Thank you also for the finviz queries and the lists on this website.
    Read it in 2 days, have to digest it but will implement it in Multicharts.
    for me one extra challenge: the eur/usd price relationship that will affect my returns being european.

    one glitch: p175 strong markets, offensive sectors: Consumer discretionary (XLP)

    Nice to have a website

  5. Duane Hawkinson says:

    I’m impressed by what I’ve read in your book so far, and I believe it’s helping me to become a better investor/trader. I say this in the context of having read over 50 investment books in the last three years. It clearly ranks in the top five.

    Just curious about your choice of indicators: To what extent, do you believe, factoring in other defensives, the transports sector, bonds, and the VIX would enhance the STOP and GO signs? Not that I want to do more work necessarily, but would other indicators help confirm the ones you’ve selected or simply be duplicative? (I also look forward to Gordon’s DMC on Friday’s and find the information he supplies concrete, trustworthy, and applicable to my investing strategies.) Many thanks.

  6. kenneth gister says:

    What is the number of points averaged in the ATR calculation? Nowhere
    in the book or website is this information given, and you can’t calculate
    an ATR (which is a moving average of the true range) without knowing
    how many points to average. I would very much appreciate an answer to
    this question. Thank you very much.

  7. Bob says:

    This website indicates certain signals and conditions when a trend direction from GO to STOP or STOP to Go has occurred. But to calculate these potential changes, I eed more definition:

    1. How is the ATR calculated?
    2. How is the 2-month change in ATR calculated
    3. How is “outperforming’ over the last 2-months calculated?


  8. Ed says:

    Have read the book twice. Good info. Just heard you refer to the go/stop on the dmc for Friday and have set up a chart to track it on my Scottrade elite. Thanx for the review. And very timely huh.

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