The main principle of the MACD, a momentum indicator, is it will also want to revert to the mean, which in its case is the zero line. As expected, the MACD line, the average of a shorter and longer term moving average, is coming back to the zero line after a too explosive spike to the upside. For the past few weeks, however, the histogram has been contracting signaling the MACD is slowly turning around. With momentum/ the MACD re-setting to the zero line, the indicator is signaling a continuation of the next cycle up - yes, continuation as the bottom has been in for a year now with the previous spike down into the 3K range.
But wait, some will say, looking at the MACD indicator, what's to stop the MACD /and price/ collapsing to new lows as it did late last year? And a fair enough question when looking at the weekly MACD alone.
But then indicators should never be looked at in complete isolation. It helps to 'triangulate' them with other indicators.... or even the same indictor in different time frames. This following appendages will explore this second approach.
At face value, why should the weekly MACD not re-test its low?
christophercolumbus
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First to the monthly MACD. Here you can clearly see how momentum, along with price, went up way too quickly. Instead of a base being built and a recovery period before the next move up, we saw a very strong bounce that was itself a reaction to the previous very strong capitulation. And so we now see the predictable correction of that bounce. The monthly MACD remains resolutely in bull territory, and looks to be coming back to a more sustainable trendline/ mean that is commensurate with the trendline/ mean of the previous cycle. The angle is predicted to be less steep due to the idea of lengthening cycles and diminishing returns/ based on the log growth curve. Given that the monthly MACD is even more lagging than the weekly MACD, it's predictable that the weekly MACD will turn up well before the monthly.
christophercolumbus
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And second, to the daily MACD. What most remarkable about the MACD on this time-frame is the way in which it has become more regular, orderly, and recognizable in a pattern. The fact that it looks less erratic and random is due to reducing volatility as compared to previous cycles in my opinion. The movements of the MACD can now be traced in arcs clearly depicting in my opinion reducing volatility and momnetum coming back to an equilibrium point of sorts on the zero line. Also remarkable is thw way in which these arcs themselves resemble the histogram on the weekly MACD.
christophercolumbus
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christophercolumbus
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By looking at the MACD over various time frames, I've hoped to depict how this strengthens the case for the weekly MACD, and momentum in the medium term, being bullish and near fully corrected as its histogram turns up.
CholericApricot
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OH SH... Boy... you called it right...
Andy_D
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Nostradaveus
TraderXY258
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THANK YOU VERY MUCH MAN
christophercolumbus
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@OunasHamza, cheers~
sharkpool
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Thank You for sharing another analysis/ lesson with us.
At face value, why should the weekly MACD not re-test its low?