The Market Bias Indicator (MBI)

       When the black line with dots (the indicator line) is above the horizontal blue line, this indicator is telling us that the market has a positive or bullish bias (in the short-term to intermediate-term, even if not in the long-term).  If the black dotted line is declining toward the horizontal line, bullish sentiment is decreasing but still present.  A negative or bearish bias will be indicated when the black line crosses below the horizontal line.
       Assume, that the market has a positive bias (the black line is above zero).  If the green line is rising, it is confirming that the environment is supporting bullishness.  In this case, long-term and intermediate-term investors who take bearish positions will be in an environment that is working against them.A declining green line in a market with a positive bias means the positive bias is not currently being confirmed … the MBI is detecting counter-currents of negative momentum that are not yet significant enough to change the market’s positive bias status.  That means investors may find situations where bearish positions can be taken with somewhat less risk than when the market has a confirmed bullish bias, but because the general environment is bullish, there is still risk in taking bearish positions.  Great caution is recommended.  Money can be made only on carefully selected bearish positions taken by short-term or intermediate-term investor/traders who know how to trade bearish positions in a market with a positive bias.  If the black indicator line crosses below the dark red dashed line, it means that the bearish sentiment is becoming more significant, but since the black line is still above zero, probabilities still favor bullish positioning.  In this environment, carefully selected bearish positions are more likely to be profitable than before the black line crossed below the dashed line.  From the perspective of an experienced short-term trader, the non-confirmed reading is giving a “go-ahead” for quick bearish trades. Here, the indicator would be giving nuanced information a level deeper than most indicators.  If the market has a positive bias, a green line turning down merely means the conditions are not “optimal” for short-term bullish positions. That does not mean they cannot be very profitable if carefully chosen.  However, a downturn of the green line in a market with a negative bias is much more problematic for bullish positioning, even for very short-term traders.
       Assume, that the market has a negative bias (the black line is below zero).  If the green line is declining, it is confirming that the environment is supporting bearishness.  In this case, long-term and intermediate-term investors who take bullish positions will be in an environment that is working against them.  A rising green line in a market with a negative bias means the negative bias is not currently being confirmed … the MBI is detecting counter-currents of positive momentum that are not yet significant enough to change the market’s negative bias status.  That means investors may find situations where bullish positions can be taken with somewhat less risk than when the market has a confirmed bearish bias, but because the general environment is bearish, there is still risk in taking bullish positions.  Great caution is recommended.  Money can be made only on carefully selected bullish positions taken by short-term or intermediate-term investor/traders who know how to trade bullish positions in a market with a negative bias.  If the black indicator line crosses above the dark red dashed line, it means that the bullish sentiment is becoming more significant, but since the black line is still below zero, probabilities still favor bearish positioning.  In this environment, carefully selected bullish positions are more likely to be profitable than before the black line crossed above the dashed line.  From the perspective of an experienced short-term trader, the non-confirmed reading is giving a “go-ahead” for quick bullish trades. Here, again, the indicator would be giving nuanced information a level deeper than most indicators.  In a market with a negative bias, a rising green line is letting an investor know that if they are very careful, there are some opportunities. For example, a setup pattern could offer a good opportunity for a 1-week price surge [a pre-surge “setup” pattern is meant here. For more on these patterns see the bottom half of the Stock Alerts page on this site]. A swing-trader may take such a position to participate in the surge and sell immediately as the surge loses momentum. These trades can enable a person to capture a gain of maybe 3% to 12% and sometimes much more than that (we have captured more than 30% in a single day).
       As for the green line, its position above or below either the black Indicator line (or Dashed red line) is not relevant.  It is the direction of the green line, not its position, that is relevant.
       The dashed red line can be used in combination with the black dotted line as a short-term buy/sell signal generator, but all signals must be confirmed by the green confirmation line. For example, say the black dotted line is below the horizontal line (indicating a negative market bias), and it crosses above the dashed dark-red line. If, at the same time, the green line is rising, then a cross above the red line may be interpreted as a buy signal in a negative environment for a short-term trade. All such signals must be viewed with respect to the prevailing context and the risks implied by the current configurations. Nothing on this Website should be interpreted as a buy or sell recommendation. Our indicators may generate buy or sell signals, but never buy or sell recommendations.
       So, what if the Indicator line is above zero (indicating a positive bias), but it has crossed below the broken red line?  If the green line is declining, it is confirming that bearish positions can be taken within the bullish environment.  However, it must be remembered that risk is higher than if the market has a bearish bias.  If the green line is rising, it is not confirming the short-term sell signal created by the Indicator line crossing below the red dashed line.  Instead, it is confirming the positive bias indicated by the black indicator line’s position above the zero line.
       On the other hand, if the Indicator line is below zero (indicating a negative bias), but it has crossed above the broken red line, simply reverse what was said in the above comments.

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.

Strong Stocks & Oversold Stocks

       This list is generated by our proprietary strength algorithm.  The algorithm looks for more persistent patterns of strength rather than the short spurts detected by the RSI.  The following list is updated daily.  The list consists of 15 stocks taken from the list that subscribers get.   For subscribers, we start with the 1,000 most important stocks traded on U.S. exchanges, rank their strength measurement, and post the top 100.  Subscriptions are free.  The price shown is not necessarily the closing price.
       The 1000 most important stocks are also ranked by their Stochastic Oscillator measurement to determine which are most oversold.  The 100 most oversold stocks are listed below the “Strong Stocks” list.

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Stochastic Oscillator
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       The Stochastic Oscillator charts above are referencing the Dow (left) and the Nasdaq Composite (right). It has been observed that as prices increase, closing prices tend to be closer to the upper end of their price range. In down trends, the closing price tends to be near the lower end of their range. Two lines are used in the oscillator — %K (red) and %D (black dashed). The %K line is calculated by the formula %K = 100[(C- L10)/(H10-L10)] where C is the latest close, L10 is the lowest low for the last 10 days, and H10 is the highest high for the last 10 days. A very high reading (over 80) occurs when the closing prices are near the top of the price range for the last 10 days, and a low reading (below 20) means the closing prices are near the bottom of the range.
       The second line (black dashed line) is the %D line, and it is the 3-day smoothed version of the %K line. The major signal to watch for is a divergence between the D line and the price of the benchmark being referenced (Dow or Nasdaq in this case) when the D line is in an overbought or oversold area. It seems the best buy signals occur when the D line is in the 10 to 15 oversold range and the best sell signal in the 85 to 90 overbought range.
       A bearish divergence occurs when the D line is over 80 and forms two declining peaks while prices continue to climb. A bullish divergence occurs when the D line is less than 20 and forms two rising bottoms while prices continue to decline. Assuming these conditions are met, the actual buy or sell signal occurs when the solid K line crosses the dashed D line after the D line has already changed direction. That is, the crossing should take place to the right of the peak or trough in the D line. For example, at a bottom, the buy signal is stronger if the K line crosses above the D line after the D line has already bottomed and started to rise. At the top, the sell signal is stronger if the D line has already peaked and begun to decline before it is crossed by the K line. That is, the crossover is stronger if both lines are are either rising or falling.
       The right-sided crossover is not as important a condition if the trade is in the direction of the original trend. For example, if prices are only in a short-term corrective dip within a prevailing uptrend and register a buy signal from an oversold area, the right-sided crossover is not particularly important. It become much more important if the signal is indicating that a trend reversal is taking place. It takes a stronger signal to reverse a trend than to resume one.
       In general, an alert or setup exists when the %D line is in an extreme area and diverging from the price action. The actual signal occurs when when the D line is crossed by the K line.

Pivot Points

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.

CCI For The Dow (left) and Nasdaq Comp. Index(right)
Click on chart to enlarge it
 (What the readings mean)

   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.

The MACD
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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

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.

What is PAL?
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.

McClellan Oscillator
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       The McClellan Oscillator is a breadth-of-market indicator that is effective for interpreting short-to-intermediate-term market moves.  It is the number of NYSE stocks advancing minus the number declining in price from the previous session that forms the raw data for the McClellan Oscillator.  Hence, the top chart is that of the NYSE.. 
       McClellan Oscillator readings of ±150 are extreme and tend to correlate well with buying and selling climaxes in the market. In the white space above the Oscillator chart you will see the outline of two boxes.  They are for +150 and -150 respectively (the overbought and oversold levels), but the numbers do not show there.  Instead, horizontal white lines show at those levels.  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.

Chaikin Money Flow & Chaikin A/D Oscillator

The top chart above is the Chaikin Money Flow indicator.  The indicator line is heavy and red.  It 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 black line and .10 is marked by the upper dashed horizontal black 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 (the lower dashed 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 dashed red lines.  Readings above .25 (the upper horizontal blue line) are very bullish and indicate higher prices are probably ahead.  Readings below -.25 (the lowest blue horizontal line) 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, too, the indicator line is heavy and red.  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 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 should be ignored because it is not necessary.  The important thing is the movement (highs, lows, and direction) of the indicator (red line) relative to that of the Dow.

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