Each bar on the chart represents the price of the S&P500 index for one week. As we update the chart on weekends, the most recent bar is for the past week. The bars are also called candle sticks. Basically when the week closes on Friday at a higher price than it opened on Monday, the candle stick will have a white body. A week where the Friday closing price is lower than the Monday open has a red body. Go here to see a further explanation for candle sticks.
The blue line on the chart is the 50 week moving average, which indicates the trend. When price is above the blue line and the line is rising, stocks are in an uptrend. The red line represents the 200 week moving average. A strong uptrend is in place when:
- 50 week MA is above 200 week MA and both lines are rising
A strong downtrend is in place when:
- 50 week MA is below 200 week MA and both lines are falling
There are 3 signals:
- Green arrow = BUY
- Yellow arrow = CASH
- Red arrow = SELL
Additional confirmation is provided by the relative strength indicator (RSI) above the chart and the moving average convergence divergence indicator (MACD) below the chart.
When the RSI is above 50, it confirms a BUY signal. Below 50 confirms a SELL signal.
The MACD indicator shows patterns of the moving averages.
When the black line is above the red line, the MACD confirms a BUY signal. When the black line is below the red line, a SELL signal is confirmed. Additional strength is shown when both lines are above 0 for a BUY and below 0 for a SELL signal.
To learn more about RSI and MACD or other technical analysis indicators, go here.
Want to learn how to implement the strategy? Go here.
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