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Stock Market Review – Alerts – McClellan Oscillator – Summation Index – Chande Momentum Oscillator – Stochastic Oscillator – MACD – Market Bias Indicator
1. A free list of high-momentum stocks is at Momentum List
2. A free list of high Relative Strength stocks is at High-RSI-Stocks
3. A free list of stocks surging in volume is at Volume Surges
4. A free list of “Hot Stocks” is at Hot Stocks
5. Stocks surging in price & volume is at Price/Volume Surges
6. Sunday & Monday we list new highs at New Highs
This site also has breakouts, stocks in setup patterns, strongest ETFs, stock alerts, stock scan reports, ETF signals and numerous indicators.
Video: Indicator Review
When a stock wants to go down, it is foolish to argue with it. Step aside and let it pass. This will result in a small loss. Accept it and be glad you took the correct course of action. A stock that breaks its trend is telling you it wants to change course away from what it has been doing. Arguing with the stock is arrogance. The stock is always right. You will often make mistakes. Be humble enough to admit it and get on with an alternative plan. This is a lesson many traders have learned the hard way and at great expense. Why not learn from them? The first loss is the best loss. It is a small loss. It sets you free.
The Dow : 2 Days 5-Min Intervals
The Diamonds track the Dow but with volume bars for 5-minute intervals. If Diamonds (DIA) are charted, the price scale will look nothing like the Dow’s. If there are no volume bars, it is the Dow
Compare Dow (DJIA) and Diamonds (DIA)
If we show the DIA instead of the DJIA, it is s to show the volume pattern. Diamonds (DIA) track the DJIA closely. The horizontal blue line is the opening level. A small line marks midpoint of each 5-minute period.
Dow Jones Industrial Average
Two systems are illustrated here. 1. Donchian’s dual moving average crossover system: If the blue line crosses from below to above red moving average line ↗ = “Buy.” The reverse of this would be a sell signal [blue line = 5-day MA, red line = 20-day MA.]
2. Triple Moving Average Crossover System (We illustrate 5, 10, 20-day MAs above).
See comments below about the moving average alignments. The line running through the volume bars is volume’s 50-day moving average.
Thursday, 6/24/21 (After Close):
The Dow was strong today, gaining 0.95% and consolidating during the last part of the day while pushing against resistance at the 50-day moving average. Investors appear to be casting many of their worries aside for now, as they focus on the infrastructure deal that parties on both sides of the isle have endorsed. It is our view that this is the beginning of a strong and lengthy advance.
The Nasdaq and the S&P 500 indexes made it to closing at record highs on Thursday, with the Dow also surging after U.S. President Biden agreed to a bipartisan Senate infrastructure deal. The massive fiscal stimulus has helped the U.S. economy grow at a 6.4% annualized rate in the first quarter, but now investors are counting on an infrastructure agreement that could power the next leg of the recovery and fuel an advancing market. Surging shares of Caterpillar and Boeing helped lift the Dow Jones Industrial Average. Fueling the S&P 500’s gains, Tesla surged 3.54% after Elon Musk said he would list SpaceX’s Starlink, when its cash flow is reasonably predictable, and said that Tesla shareholders could get preference in investing. Initial claims for state unemployment benefits dropped from 418,000 to 411,000 for the week ended June 19, the Labor Department reported today. The Commerce Department reported that the economy grew at a 6.4% rate last quarter vs. May.
On the New York Stock Exchange proper (not the Composite), there were 2,273 advancing issues, 1,046 declining issues, and 146 unchanged issues. Total volume (in 1000s) on the NYSE was 810,404 shares. Advancing issues outnumbered declining issues by a ratio of 2.17 to 1. For advancing issues, the total volume was 606,750 shares, and for declining issues, the total volume was 184,727 shares. Advancing volume exceeded declining volume by a ratio of 3.28 to 1. Today there were 202 new 1-year highs and 7 new 1-year lows. The average Total Volume for the NYSE over the last 50 days (in 1,000s) was 984,114 shares. The 50-day average of the Total Volume is 21.43% greater than today’s volume.
There has been a sell signal for big-cap blue-chip stocks. The 4-day, 9-day, and 18-day moving averages are not in perfect bullish or bearish alignment at this time. In general, it may be best to take no action at this time. Comment: The model prefers not to take any action for now, because a recent short-term counter-move may continue, resulting in a reversal. If the 9-day average rises enough to cross above the 18-day MA, that would be a buy signal according to R.C. Allen (assuming the 4-day moving average is above the 9-day moving average when that happens). The 9-day moving average is falling. — The Dow has declined over the short term, but has risen over the last few days. If the most recent positive action continues, a new positive short-term trend could develop. The 4-day moving average is rising.
The Key Bullish Intraday Level to watch is 34,286.52. The Key Bearish Intraday Level to monitor is 34,107.12. If the Dow is above the Key Bullish Level (or below the Key Bearish Level) for more than 30 minutes of the first hour of trading, the probability is that it will have a positive (or negative) bias the rest of the day, and there is a high probability that it will close higher (or lower) for the day. These probabilities assume there are no news events that modify investor sentiment between now and the next market close.
Key Intraday Levels are based on data available at the close of market, but subsequent news events can render our calculations obsolete.
[In the above charts, the blue line is the 5-day moving average, the green line is the 10-day moving average, and the red line is the 20-day moving average. In the Donchian dual moving average system, when the blue line crosses below the red line, we have a sell signal. When it crosses above the red line, we have a buy signal. In a strongly rising market, the averages of this system will spread out (as in early March in the above chart). If the blue line has been above the green line, but the green line is catching up with the blue line, we have an early warning that upside momentum is abating. Then, if the the red line catches up with the other two, it is a sign that a topping phase has begun. However, a topping phase can also be a consolidation phase, so it is not unreasonable to wait for an outright signal, or to move to cash until the signal occurs.]
S&P 500 Index
If blue line crosses above red ↗ = “Buy.” The reverse ↘ = “Sell” Donchian System: If blue line crosses above red ↗ = “Buy.” The reverse ↘ = “Sell”
Triple Moving Average Crossover System (We illustrate 5, 10, 20-day MAs above.)
The S&P 500
Two days ago, the S&P 500 had a Donchian sell signal, as the 5-day moving average dropped below the 20-day moving average. Yesterday saw the 5-day moving average inching toward a reversal of that signal, suggesting that “sell” was a false signal, one that was not confirmed by the triple moving average crossover system. Today we saw proof that the previous sell signal was false. As expected, we got a new Donchian buy signal today. However, neither the R.C. Allen system nor the 5-10-20 triple crossover system gave a sell signal. All day, it remained in the top part of yesterday’s trading range. The 20-day moving average and the 50-day moving average are both rising and the 20-day average is a respectable distance above the 50-day moving average, with no sign of convergence. Here are the details.
Comment: Alignments are very bullish. Therefore, that scenario is not likely to occur soon. It is the position of the 9-day moving average above the 18-day moving average that makes this a generally bullish configuration. If the 9-day average falls enough to cross below the 18-day MA, that would be a sell signal according to R.C. Allen (assuming the 4-day moving average is below the 9-day moving average when that happens). The 9-day moving average is rising. The S&P500 has risen over the last few days. This is most likely to continue another day. However, it would be wise to monitor the Intraday Key Levels for early signs of a change in that outlook.Currently, the market is generally supportive.Currently, the market is tending to support investments in S&P500 stocks in good setup configurations for an intermediate-term time-horizon.
The S&P 500 closed at 4,266.49. This was a change of +0.58% In the chart of the S&P 500 above, the 5-day moving average closed at 4,238. The 10-day moving average closed at 4,237. The 20-day moving average closed at 4,228. The 50-day moving average closed at 4,194. The 20-day Chande Momentum Oscillator (CMO) went from 18.08 to 22.46 An extreme value for this metric is ±50 (+50 would indicate an overbought condition and -50 would indicate an oversold condition). The stochastic oscillator went from 79.01 to 89.46 Technicians consider readings of 80 or more to be indicative of an overbought condition and readings of 20 or less to be indicative of an oversold condition. The 14-day CCI went from 92.94 to 143.49
The Key Bullish Intraday Level to watch is 4,274. The key bearish intraday level to watch is 4,259. If the S&P 500 Index is above the Key Bullish Level (or below the Key Bearish Level) for more than 30 minutes of the first hour of trading, the probability is that it will have a positive (or negative) bias the rest of the day, and there is a high probability that it will close higher (or lower) for the day. These probabilities assume there are no news events that modify investor sentiment between now and the next market close.
Nasdaq Composite Index Donchian System: If blue line crosses above red ↗ = “Buy.” The reverse ↘ = “Sell”
Triple Moving Average Crossover System (We illustrate 5, 10, 20-day MAs above.)
Yesterday, the Nasdaq remained in the top 16% of yesterday’s trading range or higher. Both yesterday and today It advanced to a new intraday high and a new closing high. Today, it gapped away from yesterday’s high. The 5-day moving average is rising again. The 10-day, 20-day, and 50-day moving averages are also all rising, and the 10-day moving average is maintaining its position well above the rising 20-day moving average. The 20-day moving average is still increasing its distance above the 50-day moving average. A longer-term buy signal took place on 6/16. The overall pattern is very bullish. We describe the RC allen system’s behavior lower on this page.
There has been a buy signal for Nasdaq stocks. Trend alignments are currently bullish, tending to support the purchase of Nasdaq stocks. It is the position of the 9-day moving average above the 18-day moving average that makes this a generally bullish configuration. If the 9-day average falls enough to cross below the 18-day MA, that would be a sell signal according to R.C. Allen (assuming the 4-day moving average is below the 9-day moving average when that happens).The current status is positive, and the Nasdaq is generally supportive of investments made for the intermediate-term time frame. The Nasdaq Composite Index is currently rising. The Nasdaq Composite Index has risen over the last few days, and it is probable that the recent uptrend will continue another day. Monitor the Intraday Key Levels for early signs of a change in that outlook. the 4-day moving average is rising. Alignments are very bullish.
The Nasdaq Composite Index closed at 14,369.71. This was a change of +0.69%. Relative to the previous close, the change in volume for the Nasdaq Composite was -5.36%. Volume was -14.68% greater than the 50-day moving average of the volume. The 20-day Chande Momentum Oscillator (CMO) went from 41.43 to 42.10. An extreme value for this metric is ±50 (+50 would indicate an overbought condition and -50 would indicate an oversold condition). The stochastic oscillator went from 94.12 to 94.58. Technicians consider readings of 80 or more to be indicative of an overbought condition and readings of 20 or less to be indicative of an oversold condition. The 14-day CCI went from 153.27 to 184.02. In the above Nasdaq chart, the 5-day moving average closed at 14,255. The 10-day moving average closed at 14,193.34. The 20-day moving average closed at 14,018. The 50-day moving average closed at 13,821.
The Key Bullish Intraday Level to watch is 14,405. The key bearish intraday level to watch is 14,334. If the Nasdaq Composite is above the Key Bullish Level (or below the Key Bearish Level) for more than 30 minutes of the first hour of trading, the probability is that it will have a positive (or negative) bias the rest of the day, and there is a high probability that it will close higher (or lower) for the day. These probabilities assume there are no news events that modify investor sentiment between now and the next market close.
Stocks In The Dow
The following charts cover the last 9 months. The red line in each chart is the 50-day moving average. Because there are so many stocks in a small space, we have not included the names of the companies. However, the symbol for each stock is in the lower right corner of its chart. The closing price for each is in a box on the right side of the chart. The charts are intended to give you a quick overview of the Dow stocks, and an idea of which industries may be doing well or poorly. Data is often delayed on some of the stocks in the layout. We may post updates early the following morning. You can get a close-up of this image by clicking on it, or by brepeatedly pressing the “Ctrl” key and the “+” key at the same time (pressing the “-” key will shrink the image).
Traders often check the CCI to see if there is divergence between it and its underlying security. They also look for overbought and oversold conditions. If the Dow is making new highs but the CCI is not, for example, then the Dow is probably heading for a correction or pullback of unknown magnitude. The CCI usually ranges between +100 and -100. If it is above +100, the underlying security is considered to be overbought. If it is below -100, the underlying secuyrity is considered to be oversold. However, there is much mor nuance to the usefulness of this analytical tool. For information and an illustration of how to use the CCI, See Tutorial 13.
Anticipating The Next Day
● The impulse readings (see below) can often give insight about the force and bias of investor sentiment as of the end of the day.
● The probable bias at the open will be suggested by pre-market data that we post in our “Early Notes.”
● To confirm the general bias after the open, monitor the benchmarks during the first hour relative to the “Key Intraday Levels” posted below.
● If you want to buy something, increase your odds of making a profit by focusing on “setups,” chart configurations that are most often seen before a price surge. Be sure to wait for the “trigger event.” A “trigger event” is your buy signal, assuming there is not overhead resistance or other contrary indications. For more on setups, go the Q&A page and read item 13. Then use the link at the end of that explanation. This table may be updated early the next morning. The date posted on the table is the date of data obtained after the close.
Support and Resistance
You may wonder why we are always talking about resistance and support. The fact is that nobody knows what the market will do next. However, knowing the location of support and resistance is extremely helpful to tactical positioning, regardless of what the market does. It is the most important, useful, and reliable information a trader or investor can have. For example, placing a stop loss just below support can minimize loss if the market works against the position. That reduction in risk can enable a person to take a position when it would not be advisable otherwise. A stop order to buy placed just above resistance can enable a person to take a position early on a breakout with minimum risk and without a need for constant monitoring. Also, knowledge about the strength and location of support or resistance can be a help in estimating the probabilities associated with the market’s next move, or how far it is likely to be able to continue in a particular direction.
A pivot point is a price level that is used by traders as a predictive indicator of market movement. A pivot point and the associated support and resistance levels are often turning points for the direction of price movement in a market. Prices tend to swing between two levels. For example, if a price is right at the first level of support (“Support 1”), the probability is that it will move back toward the “pivot point” These levels are very weak, and have most relevance for intraday action. In an up-trending market, the resistance levels may represent a ceiling level in price above which the uptrend is no longer sustainable and a reversal may occur. In a declining market, the support levels may represent a low price level of stability or a resistance to further decline. Pivot points were originally used by floor traders in setting key levels. Before the market opened, floor traders would calculate the pivot points for the day. With these pivot points as the base, additional calculations were used to set support 1, support 2, resistance 1 and resistance 2. These levels could then be used as trading aids throughout the day. The resistance levels are where sellers are likely to enter the market, depressing prices. Therefore, it is significant if a stock can push its way through the selling pressure. It takes buying demand to push shares higher through levels at which sellers are waiting. Likewise, the support levels are where buyers are likely to enter the market, exerting upside pressure on prices. Therefore, it is significant if a stock declines through the buying pressure. It takes significant share selling for shares to continue dropping, even through levels at which buyers are waiting. The price of a security or Index will remain between pivot support 3 (S3) and pivot resistance 3 (R3) 80% – 85% of the time. Therefore, many traders will wait for a move toward either R3 or S3 to show signs of stalling. When the stalling is evident, they will buy a stock that has been declining toward S3 or sell a stock that has been rising toward R3. In the above discussions of the Dow, S&P 500, and Nasdaq Composite Index, see “4-Stage Indicator and Signals” for R3 and S3.
Trading Result For One Of Our Traders
Long ago we proved to our own satisfaction (by trading with real money) that to obtain gains of more than 50% a year it is not necessary to invest in options, currencies, or commodities. It can be done simply by buying and selling stock. All you need is a good discipline (and that you actually follow your discipline). That is what this site is all about. We do not make a practice of revealing the performance of company traders. There is little reason to do so, and it is nobody’s business but our own. However, one of our traders has given permission for us to share her performance on a one-time basis.
After brokerage fees, her net return for the year was 58%. The same year, the Dow gained 18.8% and the S&P 500 gained 23.45%. All she did to obtain this return was to buy and sell stocks. She simply cut losses quickly, focused on good setups, and looked for trigger events. When it was time to sell, she did not talk herself out of it or “argue” with the evidence. She also did not sit “glued” in front of her computer. She entered her trades and set her stop losses. Often, the only time she could check her positions was long after the market closed. She did not have to agonize about margined positions held overnight because they were not part of her discipline.
It might also be worth mentioning that to optimize liquidity, to minimize the spread between bid and ask, and for risk-control reasons, this trader prefers to avoid stocks that trade for less than $5. Most of the stocks she trades are followed in The Valuator. This trader is a very private person who does not want to report her returns every year, even if her name is not disclosed, so there is no plan to update this performance in future years. This report was posted shortly after the data was available, and it will be left here for future visitors.
Please be aware that she did have major distractions during this year that almost certainly got in the way of her achieving a significantly greater return (there were three traumas that year including a divorce). In other words, this was by no means the best she could do. However, she allowed us to reveal her performance anyway in order to encourage others and to show that returns above 50% are achievable (even under less than ideal conditions).
The discipline used was extremely low in risk, much lower than the risk assumed by the average mutual fund investor or the buy-and-hold investor in individual stocks. Yes, she could have achieved a much higher return if she had kept her positions highly leveraged. She does not wish to take that route. Greed destroys discipline. 80% of the people who fully leverage their investments in the futures markets eventually lose all their money. The same can be said for some who trade penny stocks and currencies. It is not the use of leverage that makes a winner, but the use of a good discipline. Too many people don’t get that fact.
The discipline used to achieve the above return is our own creation. We do not make it available to the public as part of any service or training program. In other words, we are not providing this performance information to solicit your enrollment in any kind of program. It is provided only to encourage people to be diligent in the development of their own discipline. We will leave this report here to encourage others who may be wondering if working at developing a discipline is worth the effort.
The Buy and Sell Signals of 6 Systems
These systems cover different investment time-horizons. Each system uses two moving averages, with the exception of the R.C. Allen system, which uses three averages. If the short moving average (MA) is above the long MA, the configuration is considered to be “Bullish” because the current momentum has taken a more positive aspect relative to the longer MA. A bullish pattern is indicated by an up arrow ↗. If the short MA is below the long MA, the configuration is “Bearish” in its implications. A bearish pattern is indicated by a down arrow ↘. Thus, the direction of the arrow indicates the direction of the last crossover event. When a signal is generated, the word “Buy” or “Sell” will appear. These signs are not recommendations. They merely indicate the crossover event (the short MA has just crossed the longer MA), indicating a change from a bullish to bearish outlook or from a bearish to bullish outlook. When the signal is generated, there will be a “◄” at the right of the word “Buy” or “Sell” to draw your attention to the event. The red arrow will display for only the day on which it is generated. The following day the arrow will be gone when the table is updated, and the up arrow or down arrow will replace the word “Buy” or “Sell.” The down arrows are shifted to the right to make it easier to spot the difference at a glance. The table should be of interest to short-term, intermediate-term, and long-term investors. For example, when the outlook for the S&P 500, Dow, or the Nasdaq Composite Index is “Bullish,” the general trend of the Index is supporting bullish positions in those and stocks similar to those in the indexes. Also, some people may use the signals of one of the following systems to time entries and exits for their Index-tracking ETFs. That is, these signals may be of use in timing when to be in and when to be out of the market, based on the preferred system or investment time-horizon.
Chande Momentum,Stochastic Oscillator, Relative Strength,
CCI, & Demand Index for the Dow, Nasdaq, and S&P 500
We often post data early on the day after it is generated. Why?
Market Review Indicator Charts
Data is sometimes delayed on some of the items. If it is, we may post updates early the following morning.Interest Rate Spread NYSE Index CCI Standard
McClellan Oscillator MACD Market Bias
Market Bias Indicator
The Market Bias Indictor (MBI) is useful in evaluating the general status of the market and the nature of any investment strategy shifts that may be necessary to adjust 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 dashed line, we believe the market is favoring buyers. That is, 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. For example, when we focused it on the Dow back in the 1980’s, it was able to give a “sell signal” two days before the meltdown in 1987. Though it is sensitive, it avoids whipsaws better than most indicators. While there are numbers that determine line placement in this chart, this indicator was intended from the beginning to be a visual indicator only. The story is told by position above or below the horizontal line, not by the exact numbers for the distances. It does not add any more useful information to know that one day it is 25 points above the line and the next day it is 15 points above the line. We can visually determine that it is closer to the line and estimate its rate of approach. The same thing applies to each of the lines in the indicator. Which ones are above or below which others and which direction are they headed are the important issues rather than the quantitative readings for each. We want people to be able to glance at the chart and see a “picture” that tells them all they need to know. We do not even look at the numbers ourselves when we use the indicator. If we ever decide to place the indicator in the public domain, it will be necessary to divulge the equations used and the data needed. However, the indicator is available nowhere else on the planet, and that serves our purpose at this time. Systems and strategies tend to lose their power when they are widely disseminated.
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. Return to charts
The MACD (Moving Average Convergence/Divergence) is a popular buy/sell indicator. Here it is applied to the broad market (NYSE) because it includes all the stocks on the NYSE rather than just those in the Dow or the S&P500. The MACD is the blue line. The “trigger line” is the dotted red line. The latest reading is in the top left corner of the chart (blue). 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. A crossing of the zero line is a confirmation of the signal. 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 market is overextending and will soon reverse direction), and divergences (a bearish divergence occurs when the MACD is making new lows while the market (as measured by the S&P500, or NYSE) fails to reach new lows; bullish divergence occurs when the MACD is making new highs while the market fails to reach new highs (these divergences are most significant if the market is overbought or oversold).
Though divergences can be used as an indicator of a potential trend reversal; they can also be used as an indicator of a trend continuation. When there is an uptrend, a reverse divergence (or hidden bullish divergence) occurs when price is making a higher low, but the oscillator is indicating a lower low. This suggests that the current uptrend is likely to continue. In a downtrend, a reverse divergence (or hidden bearish divergence) occurs when price makes a lower high, but the oscillator is indicating a higher high. This suggests that the current downtrend is likely to continue. Return to charts
Interest Rate Spread
The Interest Rate Spread chart shows the pattern of change in the spread between short-term and long-term interest rates over recent months. The last reading (multiplied by 10) is inserted in the scale on the right side of the chart in a yellow box. Simply move the decimal point one place to the left to get the current reading. When the spread between short-term rates and long-term rates is +1.3% to +2% (short-term lower than long-term), the economy is thought to be in for a normal growth rate in the vicinity of 2% to 3%. If the difference is more than that, it is probably because the Central Bank is making money more easily available and the economy will likely undergo accelerated growth. When companies can get cheap money, they can more easily afford to invest in projects, facilities, and equipment that will expand business or improve operations. If the interest rate spread is negative (short-term money more expensive than long-term money, then money is being made more difficult to obtain by the Central Banks (they are attempting to reduce the rate of inflation). This will, of course, slow down the amount of capital investment made by companies. Economic expansion will be mitigated. If the spread is a negative 1.5% (or even more), then the probability is 70% that economic recession will occur within a year. This information can be the basis for some general guidelines. If the spread is negative, make stop losses hug price action more snugly and use other techniques you may be aware of to guard or enhance assets in the event of market decline. If the short-term rate is enough higher that the interest rate spread is -1% or more, cash might be your best option. If the 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. a.) If the spread is negative, tighten stops or take other protective measures. b.) If short-term rates are 1% or more higher than long-term rates, cash might be a more appropriate investment (Remember that the bear market that began in 2000 started under these conditions). c.) When the spread between short-term and long-term money is less than 1%, higher-quality growth stocks are better candidates. d.) When short-term money costs 1% to 3% less than long-term money, stocks are generally even more likely to be profitable. A greater variety of stocks will advance in valuations. e.) If the spread is more than 3%, assume that inflation is just around the corner. Return to charts
NYSE: Stochastic Oscillator
The Stochastic Oscillator chart above is referencing the NYSE Composite Index. This Index includes all stocks listed on the New York Stock Exchange. The Stochastic Oscillator is 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 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 dotted 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.
The Chande Momentum Oscillator is is no longer shown among the above indicators, but it is shown on the charts of the Dow, S&P 500, and Nasdaq. 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 (the RSI has smoothing and tends to obscure these details). The black solid line is the zero line. The dashed horizontal lines in the chart mark the -50 and +50 levels of the indicator. The Chande Momentum Oscillator indicates overbought (+50) and oversold (-50) conditions. For example, at -50 the downside momentum is 3 times the upside momentum, and at +50 the upside momentum is 3 times the downside momentum. These levels are extreme and tend to be followed by a reversal of the Index (though the reversal may not be immediate). 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 movng 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 be used to define a 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 CMO in the chart is based on 14 days. The dotted black line is the 10-day simple moving average of the CMO. This line can aid in initiating a trade before the CMO crosses the zero line. For example, a person could buy when the CMO crosses above the average instead of waiting for it to cross zero. He could sell when the CMO crosses below the average. Just be aware that this approach can give premature signals. Return to charts
CCI or Commodity Channel Index (NYSE Composite)
The Commodity Channel Index (CCI) measures the deviation of a security’s price from its statistical mean. The above chart is the 20-day CCI. High readings indicate that prices are relatively high in comparison to average prices, and low readings indicate prices are relatively low in comparison to average prices. The name of this indicator is somewhat misleading, since it is not limited in its usefulness to only commodities. It can be used with any security. Traders often check the CCI to see if there is divergence between it and its underlying security. They also use it to detect overbought and oversold conditions. If the Dow is making new highs but the CCI is not, for example, then the Dow is likely to undergo a correction. The CCI usually ranges between +100 and -100. If it is above +100, the underlying security is considered to be overbought. If it is below -100, the underlying security is considered to be oversold.
Lambert designed the CCI so that approximately 70 to 80 percent of CCI values would be between -100 and +100. Therefore, a move that takes the Index outside this range indicates unusual strength or weakness that can be a prelude to an extended move. Think of these levels as indicating a bullish or bearish bias. Some consider the CCI to be favoring the bulls when above zero and the bears when it is below zero. The problem with this is that depending only on a cross of the zero line to determine a bullish or bearish disposition can subject a person to many whipsaws. Requiring a move above +100 for a bullish signal and a move below -100 for a bearish signal will reduce whipsaws but result in slower entries and exits. Many traders consider this to be a small price to pay for a higher probability of being on the right side of a trade. There is much more to the CCI than this. The CCI is a powerful analytical tool. For a much more thorough discussion of the CCI (trading with it, signals, and interpretations), see Tutorial 13. Return to charts
The McClellan Oscillator is a breadth-of-market indicator that is effective for interpreting short-to-intermediate-term market moves.
McClellan Oscillator readings of ±150 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.
The above charts may take on a different appearance at times. That’s because we use several sources, and when one is late in getting the data out we may switch to another source. Return to charts
Gold & Silver Spot Prices
Today’s Action & Last Spot Bid Prices
We Test Common Assumptions Of Market Participants.
We test assumptions commonly made by market “gurus” to see if they are valid. On the Q & A page (item 14), we explain why we use the Dow rather than the S&P500 in our analysis, even though it consists of only 30 stocks. Another example is that a lot of people who like to consider themselves expert traders/investors, prefer exponential moving averages over simple moving averages. It is part of the “popular wisdom” of the market that exponential averages are better than simple averages because of the greater sensitivity of exponential moving averages to the most recent price behavior. However, few have really conducted more than superficial tests of the assumption that exponential is better than simple. It turns out that the very fact that they are more sensitive to recent price action can actually be detrimental. Like nearly everything else that really works in the market, the truth is counter-intuitive. We have rigorously tested the profitability of simple against exponential averages. After conducting thousands of tests on thousands of stocks in large databases using every moving average from 3 days to 200 days, and testing them over decades of market behavior, we have proven to our satisfaction that the simple moving average is just as good if not better than the exponential moving average as a signal generator (in terms of bottom line profitability). Any gain in sensitivity of an exponential average can often be more than compensated for by simply using a slightly shorter simple moving average. Often the simple moving average allows more time for momentum to build in support of a signal before the signal is actually given, and that often results in fewer whipsaws or false signals. Please do not get the wrong impression. Generally, the differences were not major, and sometimes exponential averages worked better. However, we were trying to determine which worked best most of the time on most stocks in most types of market environment. Our general observation is that being faster on the trigger is not necessarily better. Our studies confirmed the studies conducted by Merrill Lynch in 1978. Those studies showed that simple moving averages were superior to exponential moving averages. For more on the nature of our testing procedures, see our report on selling strategies (a link at the end of the report leads to a report on the Merrill Lynch study). Sell Strategy See also Item #11 at Q & A
Read these terms.
“But thou shalt remember the Lord thy God, for it is He that giveth thee power to get wealth.” Deut. 8:18
“For God so loved the world, that He gave his only begotten Son, that whoever believes in Him should not
perish, but have eternal life.” John 3:16
“I am the one who raises the dead and gives them life again. Anyone who believes in me, even though he dies like anyone else, shall live again. He is given eternal life for believing in me and shall never perish.” John 11:25
“I am the way, and the truth, and the life, no one comes to the Father but through me.” John 14:6
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