We characterize long term super-trend analysis by plotting a 9 month Simple Moving Average against a 20 month Simple Moving Average on a monthly bar chart.

Note: Futures and options trading is speculative in nature and involves substantial risk of loss

The basic analysis examines the current market above or below both of these moving averages. This is an extension beyond basic moving average analytics, which focuses on the point in time when one average crosses the other.

A long term Super-Trend Uptrend is therefore defined as a trading environment when:
• The 9 month moving average has crossed over (above) the 20 month moving average;
• Both the 9 and 20 month moving averages are trending higher; and,
• The market is trading above the 9 month moving average.

A long term Super-Trend Downtrend is therefore defined as a trading environment when:
• The 9 month moving average has crossed below (under) the 20 month moving average;
• Both the 9 and 20 month moving averages are trending lower; and,
• The market is trading below the 9 month moving average.

Let’s use Copper to illustrate:
From 2004 up until November 2006, copper futures met the super-trend uptrend “test.” The averages were trending higher, the 9 month (green line) was above the 20 month (red line) and the market was trading over the 9 month average. This super-trend uptrend, as we define it, ended in November 2006 and did not appear again until September 2010 (and ended in May 2011).

But during the six month period lasting from October through March 2009, copper met our definition of a super trend downtrend.

SOURCE: Markethead.com; Quote data provided and hosted by Barchart Market Data Solutions.

Looking at Gold today

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SOURCE: Markethead.com; Quote data provided and hosted by Barchart Market Data Solutions.

It would appear that as of this writing (October 12, 2011) the gold market meets the test for defining a super-trend uptrend.

While past performance is not indicative or predictive of future results, the long term history on the chart indicates that since April 2009, whenever gold has pulled back to the 9 month simple moving average SMA (green line) since April 2009, it has held there and gone on to eventually make a new all time record high. Again that does not mean it will happen again. The super-trend analysis is not intended as a trading tool, but in my opinion, can serve as a validation of fundamental and technical analysis for those who prefer to focus on a long term outlook for this market.

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No technical indicators work 100% of the time, including 9 and 20 period simple moving averages and super-trend analysis.

Trading futures and options is speculative in nature and involves substantial risk of loss and is not suitable for all investors. You should carefully consider whether trading is suitable for you in light of your circumstances, knowledge and financial resources. All known news and events have already been factored into the price of the underlying commodities discussed.