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. Market Review, McClellan oscillator, Summation Index, Chaiken Money Flow, Chande Momentum Oscillator, Advance Decline, Stochastic Oscillator, MACD, Volatility Index, Interest rate spread, Market Bias, Gold, and Oil Index. The current status of all these indicators is shown below on this page.
Use "Directory" to see what's where on this site. Directory
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Date & Time at Our California Location
US Naval Observatory Master Clock Time
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Dow Jones Average & R.C. Allen's Moving Average Crossover System
Red line = 18-day MA Blue line = 9-day MA Broken line = 4-day MA
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Dow Jones Industrial Average & Signals Given by R.C. Allen's System
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(We decided it would be more informative to demonstrate R.C. Allen's original system than a variation on that system). An "UP" alert occurs when the 4-day MA (broken black line) is above the 9-day MA (blue). The actual "buy" signal occurs if the 9-day MA crosses above the 18-day MA (red) while the 4-day MA is still above the 9-day MA. If the 4-day MA is not still above the 9-day MA, there is no signal until it crosses back above the 9-day MA. Signals occur only if all moving averages align correctly. The opposite conditions generate a "DN" alert. .
For more on R.C. Allen's system, please refer to the "Alerts" page.
The following may undergo small changes several times after the initial update. Economic reports around the world were dismal, increasing anxiety about a global recession. Financial stocks (down 17%), energy stocks ( down 13%), and materials (down 10%) paced the decline. Stocks fell even more when it was learned that the manufacturing sector declined at the fastest pace in 27 years in November. Crude prices also fell back below $50 a barrel after OPEC failed to approve any further production cuts. Monday's action looked terrible on the surface, but statistically it was not negative enough to be very meaningful. However, further activity to the downside could be damaging if it is severe. We may be about to re-test the lower boundary of the trading range. If the market continues down until it is below the recent low, that would be significant. So far, the market is still within the boundaries of the trading range defined by the two lower broken lines in the chart. The McClellan Summation Index is moving up with the distance between postings decreasing somewhat. The McClellan Oscillator has declined below 150 and is now heading toward the zero line. No new signals have been generated since the system we are monitoring here gave its sell signal. We do have an "alert" to a potential buy signal (generated when the 4-day average crossed above both the 9-day moving average and the 18-day moving average), but an actual buy signal may never occur. Given Monday's action, this particular alert seems destined to unwind in coming days. However, if the market is up Tuesday, we could see a rising short-term channel begin to develop and an eventual buy signal. In that case Monday's action will probably have been due to the shock effect of the announcement that we are officially in a recession. However, we suspect that the market has largely discounted that fact already, so it should not cause a disintegration of the market from here. Even if a buy signal is forthcoming, there is resistance ahead that could keep the market in its trading range for awhile. The closing tick was bearish. Perhaps Tuesday will bring greater clarity. Do not neglect to use stop losses if you are attempting to trade this market. All but the most sophisticated and nimble traders should probably keep their money in a safer place. (If any comments remain from a previous day, it is because we think the points made are still worth making.)
After a bear market, the market tends to recover about 1/3 of the loss in the first 40 days. This recovery does not start from the bear market's low, but after the market has formed its base and then starts an upward trend in earnest. Thereafter, there tends to be a 7% correction, and then a resumption of the recovery. The market has already largely discounted the worst fear-scenarios. That helps explain why it stays within the boundaries of a trading range rather than break through the lower boundary despite some recent bad news. This gives further support to the idea that the market is bottoming. The creative and aggressive actions of both the Fed and the Treasury have re-assured investors that the government will not permit major institutions to collapse. In view of recent Fed and Treasury actions, we expect the market to begin to anticipate economic recovery before long. Also, typically, portfolio managers will soon be going through their end-of-the-year "window dressing" exercises and we expect capital inflows to pick up. The market will continue to be uneasy because of uncertainty surrounding the new appointments that will be made in Washington. There is also concern that companies will not be able to grow as easily through acquisitions because of a tighter regulatory environment. We suggest that long-term investors pay particular attention to alternative energy and infrastructure sectors and be cautious about pharmaceuticals and conventional energy producers. A more precise view of where current strength resides in the market can be obtained by reviewing the strongest ETF list.
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Monitor your enthusiasm for keeping up with market developments. Bear markets tend to grind away at investor enthusiasm. The decline will be over when there are very few left who care anymore. The number of daily visitors to Web sites like this one will tend to decline in step with investor interest. If we were not aggressively building an internet presence, we could use daily visitor counts as a contrary market indicator. However, at this time such counts would not be accurate because our "footprint" is expanding. People tend to do precisely the opposite of what they should do. Enthusiasm is at a high when the market is at a high. Enthusiasm is at a low when the market is near its low. As interest in the market wanes, inertia will build. That's why the market will have to make spectacular gains to spark interest again. By the time interest has been rekindled, the market will be well off its lows. The next bull market will be nearly over by the time enthusiasm is high again. When you are least interested, that will probably be when you should be most interested.
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Volatility Measurements
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Both charts on the left are based on the S&P100 Index. The upper chart is Chaiken’s Volatility Indicator. It calculates the 10-day moving average of the difference between the high and low for each day and then computes the percent rate-of-change of that moving average over the last 10 days. The premise is that a widening of the range between the daily high and low indicates an increase in volatility. Some believe that market tops are associated with an increase in volatility (because investors are expressing nervousness due to their increasing internal conflict between fear and the desire for more gain). Market lows are supposed to be associated with relatively low volatility because investors have been disappointed so often that they don’t expect much. Mr. Chaiken looks at it differently. He believes that if his volatility measurement indicates there has been a significant increase in volatility over a short time that a bottom is near (because it is a 10-day measurement, it is sensitive to a panic-like selling climax). He also believes that a gradual decrease in volatility over a long time is what you should expect as a bull market ages and approaches a top. The lower chart on the left is a Volatility Index. We want to know if the price action is becoming increasingly "frenzied" or "calmer" within a larger historical context. Here we begin our measurement by computing the standard deviation in closing prices over the last 20 days. For a historical context we use the 100-day average of the 20-day standard deviation. This enables us to see how the current 20-day standard deviation compares to its average over the last 100 days. The chart on the right is the VIX. It is a measurement of "implied risk" and differs from the two measurements on the left in that it is not a direct measurement of price volatility. The VIX is related to the demand for puts and calls and their prices. Traders associate readings above 45 with investor fear. At these levels, we tend to see capitulation selling. People are giving up what remains of their positive attitudes about the market. This is seen as positive because it often means the market is bottoming. A reading of 30 is associated with high volatility (there is heightened fear and uncertainty in the market). Readings in the range of 20 to 25 are usually associated with a casual nonchalance on the part of investors. Readings below 20 tend to correspond to a lack of investor "enthusiasm" (the market may be nearing a top). In general, the VIX tends to increase as the market declines and decrease when the market is rising. Why? When the market is rising, it is believed to be less risky but more risky if it is on the way down.
There is a saying in the market that "the trend is your friend." The idea is that people should buy when the trend is up and sell short only when the trend is down. In other words, it is foolish to buy when the trend is down or to sell short when the trend is up. This is a generalization. Traders can profitably take positions in either direction regardless of what the general trend of the market is. However, in taking a position opposite to the general trend of the market, the trader must adjust his strategy to compensate for the increased risk. He must also pick his stocks and entry points very carefully.
With the charts below, we are attempting to illustrate whether the current trend is bullish or bearish within the context of four different time horizons. The blue, purple, and green lines are simple trend indicators. Here, we merely ask if the current trend of the market is up or down (bullish or bearish) short-term (blue line), intermediate-term (purple line) and long-term (green line). The trends on the left are dotted to better show trend acceleration (dots spread apart) and deceleration (dots bunch together). The right chart also shows the current trend, but from the perspective of the short-term trader. For each investment time horizon, the question answered is a simple one. Is the line rising or falling. More conservative investors and traders will wait for the trend associated with their preferred investment time-horizon to be supportive of the positions they intend to take.
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The DJIA Stocks
(Indicator charts are below the DJIA charts) So you can get a quick impression of what's happening in the market and at the same time review the general patterns of some major stocks, here are "snapshots" of all the stocks in the Dow Jones Industrial Average. The dark red line in each chart is the 50-day moving average. Each chart covers about nine months. To save space, no details are provided here (other than the symbol, open, and high). You can get much more detail and definition by reviewing stocks on the "Stock Scanner" page. 
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The Indicator Charts
Traders and investors are advised to make frequent reference to the following explanations until the meanings of the charts are immediately apparent with only a glance. At the beginning of the day, make it a regular practice to review the market by checking the status of each indicator. At some times the charts evolve slowly. Even when the charts are changing very slowly from one day to the next, however, the daily review will help "anchor" in your mind the market environment and the general context for your trading/investing decisions. A daily review will also help you to become sensitive to evolving market "setups" and signals. There are times when one or more charts will alert the careful observer to a significant change in the market that calls for a change in approach. Also, the charts do not always evolve slowly. The point we are making bears emphasis. You should always develop your strategy for the day only after evaluating the general status of the market and the context it gives for any trading plans you may devise.
 Chart 2: The McClellan Oscillator is at the top of this chart. It is a breadth-of-market indicator that is effective for interpreting short-to-intermediate-term market moves. The McClellan Summation Index (bottom part of chart) is a running total of each day’s McClellan Oscillator value. The Summation Index is effective for interpreting intermediate to long-term market moves. Together, they can be useful in evaluating the dynamics of the ebb and flow of the market, and in planning entry and exit points.
McClellan Oscillator readings of 150 (plus or minus) are extreme and tend to correlate well with buying and selling climaxes in the market. The McClellan Oscillator reaches these extreme values, measuring overbought and oversold conditions, in advance of market turns. It then passes through zero at or very soon after market turning points (to put this in perspective, extreme readings occur much less frequently than a pass through zero. McClellan Oscillator passes through zero tend to indicate market reversals at approximately 2 to 6 week intervals). The type of action to be taken, if any, depends on the major trend of the market (as indicated, for example, by 50 and 200-day moving averages) and on whether the move originated from an extreme reading. Thus, in the early and middle phases of a bull market emphasis might best be placed on buy signals. In a bull market, buy signals occur earlier, and positions can be taken when the McClellan Oscillator clearly moves out of its basing pattern, even if it is still negative. In a bear market, sell signals occur when the oscillator moves clearly out of a topping formation, even if it is still positive.
The amplitude of the oscillations above and below zero correlates with the general volatility of the market. The oscillator shows distinct cycles (lasting 22 to 24 weeks) between significant bottoming formations. Divergence between oscillator moves and conventional market indicators forecasts an impending change in market direction. Conventional trendline theory can be applied to oscillator patterns. For example, a triple top formation in the McClellan Oscillator forecasts a termination of the preceding up-trend. If the Summation Index is rising (or declining), it is intermediate-term bullish (bearish if declining) and the market’s trend is up (down if the Summation Index is declining). If the Summation Index is declining, the first positive sign will be a slight narrowing of the gaps between postings. The second positive sign the Summation Index will give is a flattening out of the entries (this stage is sometimes skipped). The third positive sign is a reversal in direction. The final positive sign is a slight increase in the distance between postings. Some investors use the latter as a buy signal (alternatively, some may use the second posting in the new direction as an early buy signal). They view the opposite conditions as negative, culminating in a sell signal. Because of their sensitivity, the declines and advances of these indicators can appear to be much more extreme than the actual movements in the market.  Chart 3: Dr. Felt created this proprietary Market Bias Indicator. He uses the MBI in evaluating the general status of the market and the nature of any investment strategy shifts he may make as he adapts to the prevailing market environment. For example, when the market has a negative bias (as shown by the Market Bias Indicator), it might be wise to move to cash, switch to a fund that goes up while the market goes down, place stop-loss orders on all positions, or to be extra cautious about taking new positions. When the Market Bias Indicator "says" the market is favoring buyers, it is not as likely to punish investor aggressiveness (equity growth is expected). If the black line of the Market Bias Indicator (the indicator line) is above the horizontal line, we believe the market is favoring buyers. Here, the Market Bias Indicator is "bullish" (it is probably okay to hold our positions or to take new ones). In this market environment, ignore the broken red line unless you are an aggressive trader. If you are an aggressive trader, while the black line is in "positive territory," a move above (or below) the red broken line is a buy (or sell) signal respectively. A rising (or falling) green line must confirm either of these signals before action is taken. The green line is the "confirmation-line" of the indicator. If the black line falls below the horizontal line, we believe the market is favoring sellers. That is, extra caution is in order. The Market Bias Indicator (MBI) suggests a "sale attitude" only if the green line is declining while the black line is in "negative territory" (below the horizontal line). While the black line is in "negative territory," a move above (or below) the red broken line is a buy (or sell) signal respectively. Again, a rising (or falling) green line must confirm either of these signals before action is taken. The green line will shift its position over time (appearing higher or lower relative to the other lines and the horizontal line). However, the shape of the green line will not change. The relative placement of this line is not relevant. Only its direction is important. The Market Bias Indicator is sensitive enough to have given a "sell signal" two days before the meltdown in 1987, yet it avoids whipsaws better than most indicators.
All indicators, including this one, should be used in conjunction with other methods of analysis. Bear in mind that an MBI buy or sell signal is not necessarily a buy or sell signal for individual stocks in your portfolio. These signals are merely indicators of market bias. Individual stocks should always be bought or sold on the basis of their own merit or lack thereof. .
The Chaiken Advance/Decline Oscillator is next. It uses the same data that is used in the accumulation/distribution line. However, it is created by subtracting a 10-day exponential moving average of the accumulation/distribution line from the 3-day exponential moving average of the accumulation/distribution line. The premise for the Chaiken Advance/Decline Oscillator is that a healthy price advance is accompanied by strong volume accumulation (a rising Chaiken Oscillator). It is a positive indication if the Chaiken Oscillator declines while the Index declines (volume is not supporting the decline). Because volume drives rallies, lagging volume during a rally is a sign of weakness (the rally is "low on fuel"). The Chaiken Oscillator was designed to indicate the flow of volume into and out of the stock (Index in this case). Comparison of this flow to price action can help identify tops and bottoms. Look for divergences. When prices reach a new high or low, especially at an overbought or oversold level (see the Stochastic Oscillator), and the Chaiken Oscillator fails to make a new high then reverses direction, it is a warning that price direction is likely to change. The converse would hold when the Index is making new lows. Another use is to view a change in direction of the Chaiken Oscillator as a buy or sell signal, but only in the direction of the trend. For example, if the Index is above a rising 50-day moving average (the blue line weaving through the chart), then an upturn in the Chaiken Oscillator while it is in negative territory would be a buy signal. Note how the index tends to get support at or near the 200-day moving average (the red line weaving through the chart). The latter can be thought of as a long-term self-adjusting trendline. Below the chart we enter weekly volume on the NYSE. The curved line superimposed on the volume bars is the 50-day moving average of the volume. A move in the Index accompanied by greater than average volume is much more significant than a similar move on mediocre volume. At the beginning of the week, the last volume bar will usually be much shorter than the others because the other volume bars represent a week's worth of accumulated data, and the last bar is still accumulating its data. It will not be on an equal footing with the other volume bars until the end of the week. At the bottom of the chart you will find the Chande Momentum Oscillator. The use of the Chande Momentum Oscillator (CMO) is similar to that of the Relative Strength Index (RSI). However, the Chande Momentum Oscillator measures momentum directly by combining data for both up and down days in the numerator of its equation (The RSI uses up days only in its numerator). In addition, the Chande Momentum Oscillator or CMO does not have any built-in smoothing that would obscure very short-term momentum extremes (RSI has such smoothing and tends to obscure these details). The Chande Momentum Oscillator indicates overbought (+50) and oversold (-50) conditions. For example, at –50 the downside momentum is 3 times the upside momentum. The Chande Momentum Oscillator can also be used to measure the degree to which the market is trending. The more extreme the CMO, the stronger the trend. A low CMO reading (close to "0") indicates the market is neutral or in a sideways trading range.
The Chande Momentum Oscillator can help establish entry and exit points when used in conjunction with a trend-following indicator, such as a moving average. For example, if a moving average has turned positive, you could enter the market when the Chande Momentum Oscillator is advancing (the CMO, unlike a moving average, does not lag the market) and exit when it moves lower or when the moving average gives a sell signal. The moving average can give you the buy or sell bias and the CMO can function as your "trigger." Finally, look for divergences between the action of the Index and that of the CMO. For example, if the Index is making a new high (or low) and the Chande Momentum Oscillator is failing to surpass its previous high (or low), the CMO is "anticipating" a reversal in the Index.
The daily S&P500 is shown in the lower part of the chart. The dashed red line is the 200-day moving average, the dotted blue line is the 50-day moving average, and the purple line is the 20-day moving average. These are long-term, intermediate-term, and short-term trend indicators respectively.
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Left Chart: Oil Index Right Chart: Gold - Handy & Harmon Base Price
The dotted line in each chart is the 50-day moving average.
Gold: Spot Bid Price . There is a new "Strategy Tip" at the bottom of the Home page. Click on Strategy Tip and then scroll down.
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Chart 1: This chart shows the pattern of change in the Interest Rate Spread over recent months. The last reading is inserted in the scale on the right of the chart in blue. When ST (short-term) rates are 1.3% to 2% below LT (long-term) rates, investors expect normal economic growth (2-3 percent per year). When the interest rate spread is greater, they expect even faster growth because the Central Bank is likely pushing rates down. This reduces the cost of borrowing for companies so they can expand capital investment. If the interest rate spread is such that ST rates are higher than LT rates, Central Banks are probably trying to curb inflation. Economic growth is expected to deteriorate. When ST rates exceed LT rates so that the interest rate spread is 1.5% or more, there is a 70% chance the economy will go into recession within the next 12-months. The foregoing can serve as an investment guide. If ST rates are higher than LT rates, tighten stops or take other protective measures. If they are enough higher that the interest rate spread is 1% or more, consider moving to cash. The line in the chart shows a history of the spread between the yield of short-term (13-week) treasuries and the yield of long-term (10-year treasury bonds. The actual current yields of each of these is posted in the data table. If this chart indicates that the current spread is .76, then the current spread is a little more than ¾ of 1%. The fact that the number is positive (the line is above zero) means the long-term rates are greater than the short-term rates. If the number is negative (the line is below zero) it means the short-term rates are greater than the long-term rates.
Chart 4: The Money Flow Indicator at the top of the chart attempts to measure money flowing in and out of a security. The movement of money into or out of the market can give us clues about the meaning of price movement. Look for divergence between the Chaiken Money Flow indicator and price action. If the price moves higher and Chaiken’s Money Flow indicator moves lower, the rise in prices is not supported by an influx of money, and the rally is likely to be short-lived. If Chaiken’s Money Flow is between zero and .10 (0 is marked by the horizontal red line and .10 is marked by the upper horizontal black line), then it is thought to be reflecting weak buying and it is not particularly bullish. However, Chaiken Money Flow readings above .10 are bullish. If Chaiken’s Money Flow is between zero and -.10 (the lower horizontal black line), then it is considered to be weak selling and it is not particularly bearish. Readings below -.10 are normally considered bearish. Readings of .20 are bullish (-.20 is bearish), and these levels are marked with blue lines. Readings above .25 (the upper horizontal blue line) are very bullish and indicate higher prices are probably ahead. Readings below -.25 are very bearish and indicate that lower prices are probably ahead. The flow of money often precedes price action. The Index and its 50-day and 200-day moving averages are shown at the bottom. Please note how the flow of money often precedes price action. However, money flow and price action will sometimes diverge. When this happens, do not trust the current price action of the index or security to continue. When money persistently flows into a stock, expect growth (rising prices).
Chart 5: The NYSE Index includes all stocks listed on the New York Stock Exchange. At the top of the chart you will see the Stochastic Oscillator, a short-term indicator. It can be helpful in estimating when a security (or index) is likely to change its direction in the near future. Most technicians consider it a "buy" signal when the Stochastic Oscillator falls below 20 (a few technicians use 30) and then moves above that level, and a "sell" signal when the Stochastic Oscillator rises above 80 (a few technicians use 70) and then falls below that level. The 20, 30, 70, and 80 levels are all marked. The Stochastic Oscillator can remain above 80 (or below 20) for prolonged periods while the stock or index continues moving to higher (or lower) levels. If the stock (or market) is non-trending (moving sideways confined within upper and lower parallel boundaries), then trades based on overbought or oversold levels should produce the best results. However, if the market is trending upwards or downwards, then the Stochastic Oscillator can be used to enter trades in the direction of the trend. There are also more aggressive traders who consider it a "buy" signal when the blue line rises above the red line and a "sell" signal when it falls below it. Also, look for divergences. When the market is making a series of new highs and the Stochastic Oscillator is failing to surpass its previous highs, the oscillator is giving us a warning signal.
Chart 6: The top portion of the chart shows the daily MACD, a popular buy/sell indicator, as it applies to the S&P500. The MACD is the dark red line. The basic MACD rule is to sell when the MACD falls below the broken signal line and buy when it rises above its signal line. The MACD can give buy/sell indications in three ways: signal line crossovers (the indicator is bullish if it is above its broken signal line and bearish if it is below this line), overbought and oversold conditions (the MACD is in an Overbought/Oversold range when it pulls dramatically away from the broken line; when this occurs, it is likely that the S&P500 is overextending and will soon reverse direction), and divergences (a bearish divergence occurs when the MACD is making new lows while the S&P500 fails to reach new lows; bullish divergence occurs when the MACD is making new highs while the S&P500 fails to reach new highs (expect--these divergences are most significant if the market is overbought or oversold).
