Ok So here is my weekly analysis of the FTSE all share. This is very much open to your own interpretation but the values I use I have found to be useful in the past. This is not to say they still will be useful in the future but these have been working so at the moment I am not changing them.
So I have a weekly chart with three moving averages. The MA are the 4 week, 10 week and 40 week moving averages.
Moving Averages
Moving averages can help us determine what the market is currently doing. The table below is a definition of what I think they tell us.
4>10 10>40 all pointing up
Up-trend flowing
4>10 10>40 less than 3 pointing up
Up-trend stalling
40 > 10 10 > 4 all pointing down
Down-trend flowing
40>10 10>4 lass than three pointing down
Down-trend stalling
Any other formation
So looking at the chart
10 > 40 & 40 > 4 this puts the MA combination into the last row of the table (Any other formation) so the MA tell us the that the market is currently in sideways mode.
The next chart under the main chart is the ADX reading. See the table below for my definition of what I think it tells us.
Use an 8 week ADX setting
+DI > -DI
-DI > +DI
DI lines crisscross each other
ADX crossing 25
Significant trend
ADX > 25 and rising
A continuing trend
ADX > 25 and falling
Trend consolidating or reversing
The ADX = 40 with DI- above DI+. The ADX is rising which according to our chart indicates a continuing down trend. However, only 5 weeks ago the DI- crossed the DI+ signalling a potential sideways movement. But we have to look at the here and now and according to our rules the ADX indicates a Continuing down trend.
RSI (Relative Strength Index)
RSI indicates to us if the chart is overbought or oversold.  This can give us an indication of when to buy or sell. We need to be slightly careful here as in sustained trends the reading can read overbought or oversold for a long period of time
Use a 3 week RSI setting
70 – 100
The RSI value is currently 39.42. This does not indicate overbought or oversold. There is some divergence in the indicator showing. RSI hit a low at the beginning of may and the price low was this week. Therefore this divergence can be seen as a buy signal so I will suggest the RSI is giving us a buy signal. Albeit a weak one it’s still suggesting we should be buying.
Momentum tells the rate at which the price is changing. It’s useful to indicate if a trend may be stalling or about to reverse.
Currently momentum is showing some divergence. The price made a new low this week while momentum made it’s low last week. I prefer there to be at least two weeks between the momentum low and the price low to classify as divergence so momentum is showing slight divergence indicating a stalling down trend.
So to sum up
Down trend
Weak Buy signal
Stalling down trend
Looking at the weight of the evidence here I would say we are in a sideways market. So looking back at the chart we can suggest that the FTSE all share has just bounced off a support level giving way to rise in the short term. Therefore our new positions should be long positions as we are expecting the price to rise in the short term.
This weeks positions
Cautious Long positions.
May 30, 2010 by Harry
Category: blog