Cabot Trend Lines
The Cabot Trend Lines are our unique way of determining the long-term trend of the stock market. As long as both the S & P 500 Index and the Merrill Lynch 100 Technology Index fluctuate above their respective trend lines, we consider the market to be bullish. If both indexes are below their trend lines, we are in a bear market.
The Cabot Trend Line for each index is a composite of two moving averages, a 20-week and a 39-week moving average. We use only the lower reading of the two moving averages in any week. This lower average is always recorded as the Cabot Trend Line.
The technique of using two different time-length moving averages produces earlier buy signals safely when a new bull market is getting under way (the 20-week average) and it allows plenty of room for severe corrections in bull markets without false sell signals being given (the 39-week average).
By using the trend principle, we can never be on the wrong side of the market for very long. And once the new trend forces us onto the correct side of the market, the probabilities favor a continuation of the current market trend.
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