The following market review includes the market's signals according to the R.C. Allen triple moving average system. This review also has information on Chaiken's MoneyFlow indicator, the Chande Momentum Oscillator, the Stochastic Oscillator, the MACD, the current Interest rate spread, and information regarding the Market Bias Indicator.
1. A free daily list of the 50 highest-momentum stocks in our database is at Momentum List 2. A free daily list of stocks that just surged at least 2% in price and 50% in volume is at Surges 3. A free daily list of stocks making new highs is at New Highs 4. A free list of the 50 stocks in our database with the greatest volume surge is at Volume Surges 5. Free interactive stock charting is at Charts.
S&P500 5-Day Intraday Chart
The Dow & Nasdaq 1-Day 5-Minute Intraday Charts
Trends of The S&P500, Nasdaq Composite, and The Dow
We have calculated the annualized return of each of the indexes based on their recent behavior for each time period assuming that recent behavior were continued for a year (impossible in the real world). These figures change daily with the market. Like the atmosphere and the ocean, the market has currents and counter-currents. It may be bearish for the last five days but bullish over the last 90 days. The "annualized return" is not a prediction of a 1-year return, but simply a way of understanding recent behavior. These results are purely theoretical and do not imply the profitability of investing in any security, index, or index-based security.
Daily Chart of The Dow & S&P500 (See Comments Below the Charts)
An Analysis of Short-Term Movement
We decided it might be instructive to demonstrate here R.C. Allen's triple moving average system. An "Up" alert occurs when the 4-day moving average (green line) is above the 9-day moving average (blue line). The actual "buy" signal occurs if the 9-day moving average crosses above the 18-day moving average (red) while the 4-day moving average is still above the 9-day moving average. If the 4-day moving average is not still above the 9-day MA, there is no signal until it crosses back above the 9-day MA. Signals occur only if all moving averages align correctly. The opposite conditions generate a "Dn" alert and sell signal respectively. The red arrows in the above charts mark the location of signals. For more on R.C. Allen's system, please refer to the bottom portion of the "R.C. Allen Alerts" page.
Comments Reference the Above Charts
Notice for subscribers to The Valuator: The March issue is now available.
Tuesday, March 11, 2014. The Dow finished the day at 16351.25 for a loss of -67.43 points or -.41%. The low for the day was 16325.17 (-93.52 points), and the high was 16460.3 (41.65 points). Stocks closing with a gain numbered 10 and stocks closing with a loss numbered 20 (33.3% were gainers and 66.7% were losers). Today's total volume for the Dow stocks (unweighted) was greater than yesterday's volume by 23.1%. Our "Watch List," is made up of the same stocks that are tracked by The Valuator and by our "Donchian Alerts" scanner. Those 503 stocks, underwent the following changes. The Average Price Change was = -0.62%, Rising Stocks = 118, Falling Stocks = 384, Percent of Stocks Rising = 23.5%, Falling Stocks = 3.25 x Rising Stocks, Average Volume Change = 14.2%. In the table above, we list 6 signal-generating disciplines for each of three major Indexes. Of those, 3 generated a new signal today.
20-Day Dow Chart at 1-Hour Intervals
The opening level is indicated by the solid horizontal red line. The fact that the Dow could not get above the rising red line was a negative development short-term. We have drawn in the current line of support (dashed black line). There is still a chance that the Dow will rise above the red line, but the longer it remains below it, the stronger its resistance will become. The Dow dropped below the rising red trendline on the news from China. Now it is staying there because of uncertainty. A little positive news could start the uptrend again.
Wrap-Up: (Reviewed and modified as needed on Tuesday, March 11, 2014)
The Dow Today at 3-Minute Intervals
The opening price is marked by the horizontal red line.
Wilder's SAR & Two Donchian Systems
The table near the top of this page has the most recent "buy" and "sell" signals for six different disciplines as each of the systems is applied to the Dow, the S&P500, and the Nasdaq. The following three charts illustrate three of those systems as applied to the Dow. Explanations of the charts are below the charts
The "Wilder's SAR" chart above on the left shows Welles Wilder's Parabolic SAR (Stop and Reverse) system. When a new buy signal occurs, the first red dot appears below the stock's price bars. When a sell signal occurs, the first red dot appears above the price bars. As prices trend up, the rising red 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 declines below the highest of the rising red dots, a sell signal occurs. When the price bar rises above the lowest of the declining red 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 system is designed for active traders. Many short-term traders, therefore, use the system for trading individual stocks. The red dots are sometimes used as buying and selling indicators. Sometimes they are used only as reference points for placing stop losses. Here, the system is used as a bullish/bearish indicator for the market. The "Donchian 5 X 20 System" chart shows the Donchian (5x20) dual moving average crossover system. The red line is the 20-day moving average. The blue line is the 5-day moving average. If the blue line moves from below to above the red line, it is a bullish signal. If the blue line moves from above to below the red line, it is a bearish signal. The chart on the far right shows a 1-week (5-day) channel system. Donchian's standard 4-week rule can be used in combination with the 1-week rule. In such a combination, the 1-week channel system could be used for sell signals. It sells much earlier when a downtrend begins. The 4-week rule could be used for buy signals. The three systems illustrated here (the SAR, the 5 X 20 system, and the 1-week channel) do not necessarily give identical signals at the same time. They are very different approaches to the timing of bullish and bearish positioning. Many traders use these systems to time their buying and selling of individual stocks. To do so, of course, the systems are used in reference to individual stocks or ETFs rather than the Dow or a market index. We use them here as bullish/bearish indicators for the market. A persom might, if deemed appropriate, lighten up on positions when one of these systems turns bearish and become more aggressive when it turns bullish. Some people might use the "buy" and "sell" signals at the top of this page to time the purchases and sales of ETFs that track the Dow, S&P500, or Nasdaq. [The reader must not interpret any comments made on this Web site to be personal investment buy, sell, or hold recommendations. Comments are generic and are intended only to illustrate concepts.]
Market Review Indicator Charts
Traders and investors are advised to make frequent reference to the following explanations until the meanings of the charts are immediately apparent with only a glance. At the beginning of the day, make it a regular practice to perform a market review by checking the status of each indicator. At some times the charts evolve slowly. Even when the charts are changing very slowly from one day to the next, however, the daily review will help "anchor" in your mind the market environment and the general context for your trading/investing decisions. A daily review will also help you to become sensitive to evolving market "setups" and signals. There are times when one or more charts will alert the careful observer to a significant change in the market that calls for a change in approach. Also, the charts do not always evolve slowly. The point we are making bears emphasis. You should always develop your strategy for the day only after evaluating the general status of the market and the context it gives for any trading plans you may devise. These charts are updated daily.
Chart 1- This chart shows the pattern of change in the Interest Rate Spread over recent months. The last reading (multiplied by 10) is inserted in the scale on the right of the chart in blue. 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 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 they are enough higher that the interest rate spread is -1% or more, cash might be your best option. The line in the chart shows a history of the spread between the yield of short-term (13-week) treasuries and the yield of long-term (10-year treasury bonds. The actual current yields of each of these is posted in the data table. If this chart indicates that the current spread is .76, then the current spread is a little more than ¾ of 1%. The fact that the number is positive (the line is above zero) means the long-term rates are greater than the short-term rates. If the number is negative (the line is below zero) it means the short-term rates are greater than the long-term rates. 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 the six charts. Back to Charts
Chart 2- The Relative Volatility Index (RVI) was created by Donald Dorsey to measure the direction of volatility. It resembles the RSI, except that the standard deviation of daily price changes replaces absolute price changes in its computation. The idea behind its development was to create a truly independent confirming indicator to use with the usual trend-following indicators instead of creating another indicator that simply rehashes the same data in a different way (resulting in the same data confirming itself). Dorsey's rules were as follows.
Chart 3- Dr. Winton Felt created this proprietary Market Bias Indicator. The 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 line, we believe the market is favoring buyers. Here, the Market Bias Indicator is "bullish" (it is probably okay to hold our positions or to take new ones). In this market environment, ignore the broken red line unless you are an aggressive trader. If you are an aggressive trader, while the black line is in "positive territory," a move above (or below) the red broken line is a buy (or sell) signal respectively. A rising (or falling) green line must confirm either of these signals before action is taken. The green line is the "confirmation-line" of the indicator. If the black line falls below the horizontal line, we believe the market is favoring sellers. That is, extra caution is in order. The Market Bias Indicator (MBI) suggests a "sale attitude" only if the green line is declining while the black line is in "negative territory" (below the horizontal line). While the black line is in "negative territory," a move above (or below) the red broken line is a buy (or sell) signal respectively. Again, a rising (or falling) green line must confirm either of these signals before action is taken. The green line will shift its position over time (appearing higher or lower relative to the other lines and the horizontal line). However, the shape of the green line will not change. The relative placement of this line is not relevant. Only its direction is important. The Market Bias Indicator is sensitive enough to have given a "sell signal" two days before the meltdown in 1987, yet it avoids whipsaws better than most indicators. 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 the six charts. Back to Charts
Chart 4- There are two sub-charts within Chart 4. The reference for these charts is the NYSE Composite Index. This Index includes all stocks listed on the New York Stock Exchange. At the top of the chart you will see the Stochastic Oscillator, a short-term indicator. It can be helpful in estimating when a security (or index) is likely to change its direction in the near future. Most technicians consider it a "buy" signal when the Stochastic Oscillator falls below 20 (a few technicians use 30) and then moves above that level, and a "sell" signal when the Stochastic Oscillator rises above 80 (a few technicians use 70) and then falls below that level. The Stochastic Oscillator can remain above 80 (or below 20) for prolonged periods while the stock or index continues moving to higher (or lower) levels. If the stock (or market) is non-trending (moving sideways confined within upper and lower parallel boundaries), then trades based on overbought or oversold levels should produce the best results. However, if the market is trending upwards or downwards, then the Stochastic Oscillator can be used to enter trades in the direction of the trend. There are also more aggressive traders who consider it a "buy" signal when the blue line rises above the red line and a "sell" signal when it falls below it. Also, look for divergences. When the market is making a series of new highs and the Stochastic Oscillator is failing to surpass its previous highs, the oscillator is giving us a warning signal. The second chart is the Chande Momentum Oscillator. The use of the Chande Momentum Oscillator (CMO) is similar to that of the Relative Strength Index (RSI). However, the Chande Momentum Oscillator measures momentum directly by combining data for both up and down days in the numerator of its equation (The RSI uses up days only in its numerator). In addition, the Chande Momentum Oscillator or CMO does not have any built-in smoothing that would obscure very short-term momentum extremes (RSI has such smoothing and tends to obscure these details). The dashed lines in the bottom chart of Chart 4 mark the -50 and +50 levels of the indicator. The heavy black line is the zero line. The Chande Momentum Oscillator indicates overbought (+50) and oversold (-50) conditions. For example, at –50 the downside momentum is 3 times the upside momentum. The Chande Momentum Oscillator can also be used to measure the degree to which the market is trending. The more extreme the CMO, the stronger the trend. A low CMO reading (close to "0") indicates the market is neutral or in a sideways trading range. The Chande Momentum Oscillator can help establish entry and exit points when used in conjunction with a trend-following indicator, such as a moving average. For example, if a moving average has turned positive, you could enter the market when the Chande Momentum Oscillator is advancing (the CMO, unlike a moving average, does not lag the market) and exit when it moves lower or when the moving average gives a sell signal. The moving average can give you the buy or sell bias and the CMO can function as your "trigger." Finally, look for divergences between the action of the Index and that of the CMO. For example, if the Index is making a new high (or low) and the Chande Momentum Oscillator is failing to surpass its previous high (or low), the CMO is "anticipating" a reversal in the Index. Return to the six charts. Back to Charts
Chart 5- The top chart in cell 5 is the On Balance Volume created by Joe Granville. His idea was that by computing a running total of the volume, a person could see if money was flowing into or out of a security. His premise was that the OBV would precede price action. Smart money buying shares would show by an increase of OBV and the stock would respond by rising. Smart money selling, would result in a decrease of OBV and the stock would decline. If a stock rises or falls before the OBV, or if it moves in the opposite direction of the OBV, then the move is said to be non-confirmed, and it should be viewed with suspicion. Non-confirmations often occur at the end of an advance (where the stock is still rising but OBV is not) or at the end of a decline (where the stock is still declining but OBV is not). When a stock is making higher peaks on a chart, the OBV should also be making higher peaks (otherwise, there is a non-confirmation of the rising trend). The reverse is true of a declining trend. OBV that has a sideways pattern is considered "doubtful." However, if the OBV is doubtful for only two days and the stock resumes its previous trend, then it is assumed that the trend never changed. Many short-term traders use the OBV to trade short-term cycles. They look for breakouts of the OBV (a change from a declining or doubtful OBV to a rising OBV, for example). Another use is to view a change in direction of the On Balance Volume as a buy or sell signal, but only in the direction of the trend. For example, if the stock is above a rising 50-day moving average and declining or going sideways, then an upturn in the OBV would be a buy signal. The Money Flow Indicator attempts to measure money flowing in and out of a security. The movement of money into or out of the market can give us clues about the meaning of price movement. Look for divergence between the Chaiken Money Flow indicator and price action. If the price moves higher and Chaiken’s Money Flow indicator moves lower, the rise in prices is not supported by an influx of money, and the rally is likely to be short-lived. If Chaiken’s Money Flow is between zero and .10 (0 is marked by the horizontal red line and .10 is marked by the upper horizontal black line), then it is thought to be reflecting weak buying and it is not particularly bullish. However, Chaiken Money Flow readings above .10 are bullish. If Chaiken’s Money Flow is between zero and -.10 (the lower horizontal black line), then it is considered to be weak selling and it is not particularly bearish. Readings below -.10 are normally considered bearish. Readings of .20 are bullish (-.20 is bearish), and these levels are marked with heavy blue 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. The flow of money often precedes price action. However, money flow and price action will sometimes diverge. When this happens, do not trust the current price action of the index or security to continue. When money persistently flows into a stock or market, expect growth (rising prices). Return to the six charts. Back to Charts
Chart 6- The top portion of the chart shows the daily MACD, a popular buy/sell indicator, as it applies to the S&P500. The MACD is the dark red line. The basic MACD rule is to sell when the MACD falls below the broken signal line and buy when it rises above its signal line. 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 S&P500 is overextending and will soon reverse direction), and divergences (a bearish divergence occurs when the MACD is making new lows while the S&P500 fails to reach new lows; bullish divergence occurs when the MACD is making new highs while the S&P500 fails to reach new highs (expect--these divergences are most significant if the market is overbought or oversold). The daily S&P500 is shown in the lower part of the chart. The dotted blue line is the 50-day moving average, and the purple line is the 20-day moving average. These are intermediate-term, and short-term trend indicators respectively. Return to the six charts. Back to Charts
Wendy's Trading Result
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, commodities or even to take on the risk of using margin leverage. It can be done simply by buying and selling stock in a cash account. 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, Wendy has given permission for us to share her performance on a one-time basis. After brokerage fees, her net return for the year (2009) was 58%. All she did to obtain this return was to buy and sell stocks in a very bad market. 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, Wendy prefers to avoid stocks that trade for less than $5. Most of the stocks she trades are followed in The Valuator. Wendy is a very private person who does not want to report her returns every year, 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. 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). [Portfolio returns above 50% per year can be achieved by trading relatively high quality stocks priced above $5 in a cash account. The discipline used by Wendy is 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 leveraged. She does not wish to take that route. Greed destroys discipline. Here is a little known fact worth considering. 80% of the people who fully leverage their investments in the futures markets eventually lose all their money. Some people do well in the futures markets. The same can be said for some who trade penny stocks and currencies. However, 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. For more on Wendy read Question #10 on the Q&A page. We will leave this report here to encourage others who may be wondering if working at developing a discipline is worth the effort.] People tend to confuse what it takes to gain 60% in a year with the annual gains obtained from individual stocks. For a portfolio to gain 50% in a year, an individual must invest in stocks that are rising much faster than an annualized rate of 50% during the time they are in the portfolio. Why? Many successful traders do well if 50% of their picks rise, though some have achieved success rates of 70% or more. In bad makets, less than 50% of a trader's picks may be successful. When a stock declines, it cancels out some of the gains achieved by other positions. A trader who gets a return of, say, 100% on his entire portfolio would likely have invested in many stocks that were rising at an annual rate of more than 200% during the time in which the trader held those stocks. A swing-trader, for example, may have a an average holding period of a week or a month. Stocks rarely rise 200% or more per year, but many stocks will surge for a few weeks at an annualized rate of more than 200%. To achieve great performance, top traders look to be invested in stocks during the relatively short time in which they are surging. That takes discipline in timing and selection.
All pages on this Web site are protected by copyright
Copyright © 2008 - 2014 by Stock Disciplines, LLC
No part of this publication may be reproduced or distributed in any form by any means.
Stock Disciplines, LLC
1590 Adams Avenue #4400
Costa Mesa, CA 92628 USA.
"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 whover believes in Him should not perish, but have eternal life." John 3:16 .