|The ADX is one of the most important indicators in technical analysis. It tells traders whether they're likely dealing with sideways or trending markets. This in turn decides the kind of weapons or indicators that should be used. Ruby Tuesday had been sideways for most of last three months on the daily chart, and it recently broke to the upside of a head and shoulders consolidation pattern. It should continue the uptrend that it was in prior to the consolidation.|
|Figure 1: Daily chart of Ruby Tuesday.|
|Graphic provided by: eSignal.|
|The ADX on the Ruby Tuesday daily chart was under both the DIs, and thus formed a good consolidation, from which this stock has again broken upwards. The ADX has also risen above the 20 level indicating that a trending move is on its way. In general, the ADX shows strength in the trend when it is rising from 15 to about 40 and shows a consolidation when it's declining from 40 back to about 15. Under a level of 20, it indicates that the market is likely to move in small swings. The buy signal on the daily MACD has been there for some time and it can be taken now as the market shows trending characteristics via the ADX.|
Figure 2: Weekly chart of Ruby Tuesday.
On the weekly chart, Ruby Tuesday has also broken out from a rectangular consolidation pattern. It is very comforting when the weekly chart confirms the daily signal. The weekly ADX maintains above 30 and thus shows continued trend strength. The weekly MACD has also given a buy signal and has crossed the previous high. The weekly target of $35 is calculated by measuring the size of the move before and extrapolating upwards of the consolidation.
|To recap the key points of this article, traders should watch the ADX very carefully and play the market differently based on trending and trading conditions. The ADX measures the strength, not the direction, of the trend.|
|Title:||Chief mkt strategist|
|Phone # for sales:||9871066337|
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