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A LONGER-TERM MARKET VIEW

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Daily charts can be used to fine tune entry and exit points, but they should be interpreted within the context of what weekly charts and indicators tell us. For example, some shorter-term indicators show the market to be overbought, but the weekly chart implies that another leg of the bull market is just beginning.

At the beginning of this year the market began a corrective phase that lasted about eight months, climaxing with the shakeout selling into the August lows. As you can see on the chart, bull market correction often conclude when the price index dips below the moving averages. The fact that prices are now back above the moving averages (which are also rising), is a good sign that the correction is over.

Another good sign is that the Price Momentum Oscillator (PMO), which topped in overbought territory in the first quarter, has now bottomed near the zero line. You can see how the PMO remains above the zero line during bull market corrections -- in bull markets the zero line is an oversold level for the weekly PMO.

There is nothing not to like on this chart. A lengthy correction has been successfully concluded and the market environment is very positive. I have no opinion on how long or high the rally will go, but I assume it will last for at least a couple of months. We want to see the PMO continue to rise and cross above its 10-EMA. If the PMO turns down below its 10-EMA, it would be a strong sell signal.

Chip Anderson
About the author: is the founder and president of StockCharts.com. He founded the company after working as a Windows developer and corporate consultant at Microsoft from 1987 to 1997. Since 1999, Chip has guided the growth and development of StockCharts.com into a trusted financial enterprise and highly-valued resource in the industry. In this blog, Chip shares his tips and tricks on how to maximize the tools and resources available at StockCharts.com, and provides updates about new features or additions to the site. Learn More
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