Alerts – McClellan Oscillator – Summation Index – Chande Momentum Oscillator – Stochastic Oscillator – MACD – Market Bias
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Updated 12/9 (After Close of Market):
The Dow closed at 33476.46, down 305.02 points or 0.90%, the S&P 500 closed at 3934.38 down, 29.13 points or 0.73%, and the Nasdaq Composite Index closed at 11004.61 down, 77.39 points or 0.70%.
Dow: The Dow closed lower today, pulling away from the resistance along “P,” and giving additional evidence that the Dow has no real direction right now. It is in a generally sideways consolidation pattern, swinging between support at “K” and resistance at “M” (with intra-channel resistance along “P”). Note the light gray line just below the letter “K.” That is the 200-day moving average. The heavy dotted line is the 50-day moving average. The 50-day moving average is converging with the 200-day moving average, and it will eventually cross it. When the 50-day moving average crosses above the 200-day moving average, many technical analysts will consider it to be a significant buy signal.
S&P 500: Overall, the pattern of the S&P 500 is a trading range with support along “X” and resistance along “B” with some inter-boudary resistance at the broken red line labeled “Q.” Today, the Index only treaded water, reaching a high that was higher than yesterday’s high and a low that was lower than yesterday’s low. Essentially, it is hovering above support along “X.”
Nasdaq Composite Index: The trading range between “K” and “A” is likely to continue, with an eventual breakout through the resistance of “A.” Support along “K” is reinforced by the support of the 50-day moving average (which is now rising). The Index rebounded after encountering buying pressure along “K” yesterday. The probabilities favor a higher close tomorrow. While the Index closed lower today, its range was higher (the high was higher than yesterday’s high and the low was higher than yesterday’s low). Today’s action was a non-event from a technical perspective.
Relative to yesterday’s readings, the 4-day moving average has declined, the 9-day moving average has declined, and the 18-day moving average has declined. The 20-day average is declining, and the 5-day average is declining. The 5-day moving average closed at 33,679.86. The 20-day moving average closed at 33,878.94.
Highest RSI Stocks
The Relative Strength Index (RSI) oscillates between 0 and 100. Look for a divergence in which the security is making a new high, but the RSI is failing to make a new high. This divergence would be an indication of a probable reversal. If the RSI then declines and falls below its most recent trough, it is considered to have completed a failure swing. This would be considered to be a confirmation of a probable reversal. The RSI usually tops above 70 and bottoms below 30. The RSI usually forms these tops and bottoms before the underlying security. However, please be aware that a stock that is very strong can have an RSI that is well above 70 for extended periods. Thus, many short-term traders like to find high RSI stocks in order to “hop on” for a ride.
Also useful to note is when the RSI surpasses a previous peak or falls below a previous trough (low). The RSI sometimes reveals more clearly than a price chart, the location of support and resistance. The formula is RSI = 100-[100/1+(U/D)] Where: U = Average of upward price change, and D = Average of downward price change The RSI should not be confused with our own strength algorithm (used in our Strongest Stocks and Strongest ETFs reports, and in The Valuator). The RSI measures short-term strength over the most recent 14 days. If the following list is not updated within a few hours after the close, look for it early the next morning.
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Explanation Of Pivots
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.
These Indicator charts will be updated weekly (sometimes more often). If an indicator chart is based on more than one day, it can take several days for the indicator to show much of a change even if the index makes a big move on a single day. Even if an indicator is very sensitive to daily Index changes, it can be helpful to compare the current Index with the posted chart.
Chaikin Money Flow & Chaikin A/D Oscillator
Here, we are focusing on the two bottom charts. Above them are the Dow and volume to give context to the bottom two charts. Regarding the two bottom charts, the top one is the Chaikin Money Flow indicator. The indicator line is heavy and red. This indicator attempts to measure money flowing in and out of a security (in this case, the Dow). The movement of money into or out of the market can give us clues about the meaning of price movement. Look for divergences between the Chaikin Money Flow indicator and price action. If the price moves higher and Chaikin’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 Chaikin’s Money Flow indicator is between zero and .10 (0 is marked by the solid horizontal line), then it is thought to be reflecting weak buying and is not particularly bullish. However, Chaikin Money Flow readings above .10 are bullish. If Chaikin’s Money Flow is between zero and -.10, 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). Readings above .25 are very bullish and indicate higher prices are probably ahead. Readings below -.25 are very bearish and indicate that lower prices are probably ahead. Please note how the flow of money often precedes price action. However, money flow and price action will sometimes diverge. When that happens, do not trust that the current price action of the Dow will continue. When money persistently flows into the Dow, expect an advance.
The Chaikin Advance/Decline Oscillator is on the bottom. Here, the indicator line is heavy and blue. This indicator 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 he accumulation/distribution line from the 3-day exponential moving average of the accumulation/distribution line. The premise for the Chaikin Advance/Decline Oscillator is that a healthy price advance is accompanied by strong volume accumulation (a rising Chaikin Oscillator). It is a positive indication if the Chaikin Oscillator declines while the Dow 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 Chaikin Oscillator was designed to indicate the flow of volume into and out of a stock (the Dow in this case). Comparison of this volume flow to the Dow’s 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 CMO or the stochastic oscillator), and the Chaikin Oscillator fails to make a new high or low and then reverses direction, it is a warning that price direction is likely to change. Another use is to view a change in direction of the Chaikin Oscillator as a buy or sell signal, but only in the direction of the trend. For example, if the Dow is above a rising 50-day moving average, then an upturn in the Chaikin Oscillator while it is in negative territory would be a buy signal, especially when the Dow is very close to the 50-day moving average. A scale on the right is in millions and can be ignored because it is not necessary. The important thing is the movement (highs, lows, and direction) of the indicator (blue line) relative to that of the Dow (light gray line).
Nasdaq Composite With Donchian & SAR Systems
The above chart shows two trading systems applied to the Nadaq Composite Index. The Donchian (5×20) dual moving average crossover system tracks the 20-day moving average (red) and the 5-day moving average (blue). If the blue line crosses above the red line, the system is bullish. For many, this constitues a “buy” signal. If the blue line crosses below the red line, the system is bearish, and giving a sell signal.
The second system was created by Welles Wilder and is called the Parabolic SAR (Stop And Reverse) system. As prices trend up, the rising black dots below the price tend to accelerate upwards. The same thing occurs in a downtrend (except that the dots are above the price bars, and they accelerate downwards). When the price bar rises above the lowest of the declining black dots, a buy signal occurs. The system, designed for short-term traders, is very sensitive (it reacts to relatively small moves). A drawback of the system is that it tends to whipsaw during non-trending markets. However, it works well when the market is trending. The black dots are sometimes used for both buying and selling. Sometimes they are used only as reference points for placing stop losses. Here, the system is used as a bullish/bearish indicator for the Nasdaq Composite Index.
The above chart is the CCI based on the Dow (left) and the Nasdaq Compsite Index (right). 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 security is considered to be oversold. However, there is much more nuance to the usefulness of this analytical tool.Learn more.
SETUPS: 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.
S&P 100 (OEX) & Dow: A Strategy
The S&P 100 (OEX) is a subset of the S&P 500. It includes 100 companies that have exchange-listed options. All stocks on the following list are in the Dow or the S& P 100 (only one Dow stock is not in the S&P 100). The approximately 100 stocks listed (mergers may change the count) are ranked in the order of their 12-day momentum. A review of the list might suggest which industries or sectors have the most strength. However, the list offers more than that. For example, a person could select the top ten stocks on the list for inclusion in a portfolio. These have the greatest positive momentum. Then, once a week, any that have fallen out of the top ten could be replaced with those that replaced them in the top ten ranking. That way, the portfolio could be kept mostly invested in top ten performing stocks throughout the year. Alternatively, the portfolio could be adjusted monthly or quarterly rather than weekly, or a different number of stocks could be included. The stocks are numbered for easy reference. For example, a stock could be replaced if it falls out of the top 8 rather than the top 10, and so on. As of 7/2/21, the OEX has had a total return of 15.32%/year for 10 years. Remember that every stock in the OEX that declines cancels out some or all of the performance of a stock that rises. What would the return be if the portfolio did not include declining stocks? What if it always contained only the top performing stocks and there were no falling stocks to counter the performance of strong stocks? The portfolio should do much better than the Index if it contained only the most aggressively rising stocks and omitted all the falling stocks because it would contain only the best of the best. The lists used for this strategy are available to subscribers in the “Subscriber Section” for those who have ordered a free password. Go to that page (use the second tab on the main menu) and then click on “OEX Strategy”
Note: we are providing information only, not making recommendations.
The illustration shows a line of support. The dots represent buying interests about that line. More accurately, each dot represents a little support if the stock is falling from above the line. and a little resistance if the stock is below the line and rising. Buyers do not align themselves precisely on the line of support drawn on a chart. The line merely represents the central tendency of buying interests. The line illustrates where the influence of the buyers can be expected to be at a maximum. In the real world, a declining stock does not always stop its decline precisely on that line. This is what we mean when we say that a line of support has “elasticity.” Those dots represent a “region of influence” and the line represents the “central tendency” of influence of all those dots. In a given situation, a falling stock is most likely to stop its decline somewhere within the cloud of points surrounding the line. We see this cloud of points as defining a probability envelope where the line is the location of greatest probability. Probabilities diminish with distance from the line.
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.
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.
Chande Momentum,Stochastic Oscillator, Relative Strength, & CCI for the Dow, Nasdaq, and S&P 500
Do not click on image to enlarge. Instead, press “Ctrl” and “+” simultaneously.
The Interest Rates charted above are the long-term (10-year) and short-term (13-week) interest rates over recent months. The last reading (in percent) is inserted in the scale on the right side of the chart in a colored box. The spread between the two is shown in the right chart. 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.
The first chart above is the NYSE Composite Index, the second is The McCkellan Oscillator, and the third is the McClellan Summation Index. The McClellan Oscillator is a breadth-of-market indicator that is effective for interpreting short-to-intermediate-term market moves. The McClellan Summation Index (bottom 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. The readings indicated depend on the precise time the readings were taken. For example, after the market officially closes, stock prices may continue changing by small amounts for a short time as computer systems catch up with closing activity. Readings at the official closing time may be slightly different from those 15 minutes after the close. Thus, different sources may report slightly different readings. Another variation is caused by differences in the beginning date of the accumulated data. These variations are not particularly important. What is important is the pattern of each indicator. Even though different sources may provide somewhat different numbers, the chart patterns from any two sources will be nearly identical.
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 (the black dotted line) 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 Summation Index is a relative number, depending on the day when the count begins. Therefore, on one day it might read 10,000 and the next day it might read 9,000 even though the chart shows the Index rising. In this case, the apparent discrepancy would simply be the result of the summation starting on a later day for the chart selected. You can get a better sense of what is going on by simply looking at the chart. Ask yourself questions like the following. Is the Summation Index rising or falling? Are the postings far apart or close together? For example, 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.
Market Bias Indicator
Not updated for 6/21/22
The Market Bias Indictor (MBI) consists of three panels, the Bias panel containing the broken black indicator line, the Buy/Sell panel (the red line) and the Confirmation panel (the green line). The horizontal purple line in the first two panels is the zero line. This indicator 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. We have recently “tweaked” the Market Bias Indicator in a way that makes it easier for the user to understand. We believe the second panel is more sensitive than the equivalent configurations in the original MBI. We have also modified the time frame for visual simplification. If you have used the MBI before these changes, please give us feedback. Do you prefer this configuration or the original? Simply send an email that says “I like the new MBI” or “I prefer the old MBI.” Thank you. To see the old version, go to MBI .
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, the market is not as likely to punish investor aggressiveness (equity growth is expected).
If the broken black line in the left panel of the Market Bias Indicator (the indicator line) is above the solid purple zero line, the MBI is saying the market has a positive bias. It is favoring buyers. That is, the Market Bias Indicator is “bullish” (it is probably okay to keep holding your positions or to take new ones). In this market environment, ignore the red line in the middle panel unless you are an intermediate-term or short-term trader. If you prefer to manage your portfolio more aggressively, while the black line is in “positive territory,” a move by the red line above (or below) the purple zero line is a buy (or sell) signal respectively. [Red below purple line = Sell, Red above purple line = Buy] However, a rising green line (the right end of the line is higher than the left end of the line) must confirm a buy signal and a declining green line must confirm a sell signal before action is taken. If the black line falls below the purple line, the indicator is saying that the market is favoring sellers (it has a negative bias). That is, extra caution is in order. Even with a negative bias, the Market Bias Indicator (MBI) suggests a “sale attitude” only if the red line (middle panel) is below the purple zero line and the green line in the third panel is pointing downward. While the black line in the first panel is in “negative territory,” a move by the red line above (or below) the zero 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 relative placement of the green line is not relevant. Only its direction is important. A buy signal when the MBI is indicating a negative bias may be of very short duration, and should be implemented only by those who know how to trade in a negative environment.
The Market Bias Indicator is sensitive. For example, using this configuration of the MBI on the Dow back in the 1980’s, it was able to give a “sell signal” five days before the meltdown that occurred on October 19, 1987. Though it is sensitive, it avoids whipsaws better than most indicators. While there are numbers that determine line placements 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 zero lines, 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. Placement above or below the zero line and the direction of the green line 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 distributed.
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. For more information, go to MBI.
The MACD The MACD (Moving Average Convergence/Divergence) is a popular buy/sell indicator. Here, we present the MACD chart for the Dow (left) and the Nasdaq Composite Index (right). The MACD is the blue line. The “trigger line” is the dotted 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. 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. Divergences occur, for example, when price makes a new swing high or a new swing low, but the MACD histogram does not, indicating a divergence between price and momentum. Bar Colors: Red = Negative & Down, Purple = Negative & Up, Blue = Positive & Down, Black = Positive & Up
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
Trading and/or investing in the securities markets involves risk of loss. This Website NEVER recommends that ANY individual buy or sell ANY securities. It does not give individual investment advice, and nothing herein should be interpreted as if it does. Readers wanting investment advice should seek that advice from a licensed professional. StockDisciplines.com will not be responsible for loss that results from using information provided on this Website.
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“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
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