A few key points to remember when analyzing market movements:

  • Uncertainty causes much of the volatility, as neither buyers, sellers, or holders have the majority conviction to control the trend.
  • Unexpected good news causes the market to (generally) go up as the new situation is priced in.
  • Expected good news is usually sold into when announced, because the majority already bought expecting the trend up. All that is left is profit taking after the catalyst has passed.
  • Expected bad news can cause rallies because the people who want out are already out. When the event passes, the sellers are exhausted and buyers are now safe to take positions.
  • Unexpected bad news can cause big sell-offs as new information is priced in, and fear grips holders who panic and sell.
  • Bear market bottoms happen when all sellers are exhausted in an environment of maximum pessimism. The worse case scenario is already priced in, leaving nowhere for price to go but up.
  • Bull markets top when there is maximum euphoria and the majority believe there is easy money to be made. They believe that a paradigm shift has happened and the markets have changed permanently.
  •  In the majority of cases, strong up trends in the 10 day simple moving average acts as support. In very strong up trends, the 5 day exponential average acts as support.
  • Strong bull markets bounce after touching the 50 day simple moving average. Very strong bull markets bounce on retracements to the 21 day ema.
  • The 200 day simple moving average is the ultimate line in the sand between bull markets and bear markets.