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Deciphering what Markets price action is telling us

Dow Bull Flag

Stocks and Avreages are present in all timeframes and we should look at higher timeframe to decide what the markets will most likely do next.

The best answers come from the simpliest of the tools.

  1. Simple Moving Average also considered as a automatic trendlines(NYSE:AT).
  2. Price channels by connecting the near term highs and lows

In the above chart of DOW, you can see the following

  1. On Dow's monthly chart, the prices are clearly in bull trend.
  2. On Dow's weekly chart, weekly prices are kissing the moving average. Trading at the point when prices kisses the AT provides the best risk reward ratio entry point.
  3. On  Dow's daily chart, prices are making a Bull Flag. So it will not be surprising if we breakout on the upside and have a green June (like Sept 2010).
In this cloud of uncertainity in news media, what are the chances that we will breakout in the upside. Is there any clues?

To find out more, I moved my attention to other indices.

The first break came from the broader market indices. Rusell 2000 (NYSEARCA:IWM) and World Market (NYSEARCA:VT) both have the similar bull flag formation and broke out of the bull channel on the upside.( Draw similar parallel lines connecting the highs and lows after the May 1st high in IWM or VT chart to see that they have broken out).

Here is how IWM is looking
IWM breakout

I have seen in recent past that IWM first breakout and then SPY follows. It is also a healthy sign that the broad based market is leading.

Ok now I think I am getting a feel strongly that we can break upside. But how about the other countries.

I went to check the world stage.

On the World stage

Canada(NYSEARCA:EWC), Mexico(NYSEARCA:EWW), European Index(NYSEARCA:VGK), France(NYSEARCA:EWQ), Germany(NYSEARCA:EWG), Latin America(NYSEARCA:ILF), Australia(NYSEARCA:EWA), Russia(NYSEARCA:RSX), Emerging Markets(NYSEARCA:EEM) and India(NYSE:IFN) all broke out on the upside of their similar bull channel during this period.

Thus the prices are saying that it can breakout on the upside.

Disclosure: I am long SPY.

Additional disclosure: I have call options of SPY and IWM and own no stocks