The SPY:SPDR S&P 500 Is one of the most popular funds on the market. It aims to track 500 large and mid-sized US companies that are selected by a committee on a number of factors. It is used as a benchmark to U.S financial market, its volatility and the health of the general economy. We will be spending some time looking at the technical indicators to help us understand where the SPY might be heading.
Arnaud Legoux Moving Average
The Arnaud Legoux moving average in my opinion is the king of all the moving averages for two primary reasons it is highly responsive to movements in the tread and it is also a-lot does a better job at smoothing out a tread. This was a common drawback for investors using traditional moving averages. Only made in 2009 the Arnaud Legoux moving average is new to the moving average family but insanely effective, as it is swifter eliminating the price lag that is often associated with moving averages. The fundamentals of the moving average remain the same however if the stock price in blue line moves below the Arnaud Legoux moving average in the red line it highlights a bearish trend is occurring indicating prices may fall. This is the case with the snp 500 as we can see the price has started to cross the Arnaud Legoux moving average highlighting it may continue to fall.
The Vortex Indicator is a powerful indicator for spotting trend reversals and confirming current trends. The way it is used is very simple there is a VI positive line in (Blue) and a VI negative in (red) a bullish trend is confirmed if the blue line sits above the red line and a bearish trend exists if the red line sits above the blue line. A reversal occurs when the lines cross as we can see with the snp 500 graph above the red line has crossed above the blue line indicating a trend reversal and a sell signal that the downtrend is on its way.
The Aroon indicator works with two lines an Aroon up line in orange which measures the strength of the uptrend and the Aroon down line in the blue which measures the strength of a downtrend these lines will fluctuate day to day moving above and below each other. The Aroon indicator is used to determine the strength of the stocks up or down trend relying on the premise that strong up trends will see higher highs and strong downtrends will see lower lows. Readings of above 0 indicate an up tread and readings of below 0 indicate a down trend. To keep it simple if the Aroon Down line crosses above the Aroon up line this indicates a bearish selling signal because it is the start of a new trend the strength of the trend would be determined by its reading above or below 0. If it is closer to 0 it is considered weak if it is closer to 100 the trend is stronger. Looking at SnP 500 chart we can see that the Aroon down line has crossed the Aroon up line indicating a downtrend is on its way although it isn’t very strong it could develop into something stronger.
With all this said it is always important to remember to diversify your investments to ensure that you are less sustainable to market volatility and rapid market movements. Also if you are new to investing make sure you look into trading with a demo account to practice, more information on that can be found here.