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Market Review and Indicator Status

 

Stock Market Review & Indicator Report

covering the following indicators and more

 

Price & Volume Surges, Earnings Due, McClellan Oscillator, Summation Index, Advance Decline,
Chaiken MoneyFlow, Chande Momentum OscillatorStochastic Oscillator, MACD, Volatility,
Interest rate spread, Market Bias, Gold, and Oil Index, Commodity Channel Index (CCI).  
  

 

Use the "Directory" to see what else is on this site. Directory

Notice: We urge all trainees to learn how to read the indicator charts on the lower portion of this page.  They are updated daily.  Use the charts to perform your "market review" every day.  The comments of media "gurus" have distortions and biases (in addition to their very poor timing) that will cause you to make decision errors if you take what they say at face value.  The charts are extremely important tools by which a person can gain keen insights on the market, insights that can be very helpful to both the short-term trader and the long-term investor.  Review the explanations periodically so that they become deeply engrained in your thought patterns regarding the market.  We will make occasional comments and perhaps draw your attention to important developments.  Note to visitors: We are not currently accepting new trainees.  Details about fees and programs are not available at this time. 

Why we have the current time for two time zones posted below is explained in "Q&A" #14 

Date & Time at Our California Location 
US Naval Observatory Master Clock Time.
 .

Date & Time at the New York Stock Exchange
US Naval Observatory Master Clock Time.



S&P500 Intraday Chart
 

       

The data table previously located here has been expanded and relocated to a
position above the list of companies about to give their earnings reports. 
 
Market Review: The Latest Closing Statistics
    

Market Indexes and Other Measurements Updated Thu p.m. After Close

Name

Last

Change

Name

Last

Change

D-J Indus

12705.40

-.09%

S&P 500 Index

1325.54

.11%

D-J Trans

5305.66

-.70%

S&P Trans

347.47

-.39%

D-J Utility

449.84

-.24%

S&P Elec Util

211.25

-.32%

D-J Comp Avg

4366.61

-.30%

S&P 100

598.54

.09%

NYSE-Index

7945.43

.18%

NYSE-Advancing

1685

-32.19%

NYSE-New Highs

209

-31.25%

NYSE-Declining

1279

146.91%

NYSE-New Lows

7

-36.36%

NYSE-Unchanged

115

33.72%

NYSE-Issues Traded

3079

-.32%

NYSE-Total Vol

809,176,576

-9.20%

Nasdaq-Composite

2859.68

.40%

Nasdaq-Volume

1,921,723,904

-10.94%

Nasdaq-Advancing

1512

-21.29%

Nasdaq-Declining

973

63.80%

Nasdaq-New Highs

165

20.44%

Nasdaq-New Lows

15

36.36%

Nasdaq-Traded

2603

-.42%

Nasdaq-Unchanged

118

19.19%

Gold-Handy & Harm

1740

-.23%

Gold ETF (GLD)

171.05

.88%

Silver-Handy &Harm

33.815

2.53%

Silver ETF (SLV)

33.36

1.80%

Us Prime Rate

3.25

.00%

Euro Ex. Rate

1.3145

-.10%

10 Y Tsy Yld Ndx

18.25

-1.14%

Swiss Franc Ex. Rate

0.9161

.08%

13wk Tsy Yld Ndx

0.75

36.36%

Jap. Yen Ex. Rate

76.18

-.03%

S&P 400 Midcap

955.74

.13%

S&P 600 Small Cap

453.83

.49%

Oil Index

790.7

.36%

S&P Gas Util

394.82

-.73%

S&P Financial

193.19

.46%

S&P Gold

146.64

1.91%

S&P Railroads

735.19

-.21%

S&P Real Estate

139.01

.10%

  

.
Dow Data

BAC +0.39 +5.23%, CAT +3.61 +3.27%, AA +0.34 +3.26%, DIS +1.09 +2.8%, AXP +1.09 +2.13%, HPQ +0.57 +2%

KO +0.25 +0.37%, MMM +0.3 +0.34%, WMT +0.09 +0.15%, JNJ +0.05 +0.08%, MRK -0.07 +-0.18%, PG -0.55 +-0.87%

Dow Jones Industrial Average

12862.23

156.82 Points

1.23%

Hi: 12869.95

Lo: 12704.96

Stks Up =29 Stks Dn = 2 Unchanged = 0

Pts At High:

164.54

Pts At Low:

-0.46

Ny Tick: 736

Note - For some measurements, the exact time can make a difference (even after the close).  For example, we get the NYSE Tick data from 
four different data vendors.  No two were the same when we checked well after market hours (at approximately the same time).
 
  
R.C Allen's Trading System
Make sure you are seeing the updated chart.  In Firefox go to tools, click on "Clear Private Data," refresh page.
 
. 
Dow Jones Industrial Average & Signals Given by R.C. Allen's System
We decided it would be informative to demonstrate here R.C. Allen's systemAn "UP" alert occurs when the 4-day MA (broken black line) is above the 9-day MA (blue).  The actual "buy" signal occurs if    the 9-day MA crosses above the 18-day MA (red) while the 4-day MA is still above the 9-day MA.  If the 4-day MA is not still above the 9-day MA, there is no signal until it crosses back above the 9-day MA.  Signals occur only if all moving averages align correctly.  The opposite conditions generate a "DN" alert.   For more on R.C. Allen's system, please refer to the "Alerts" page.
 
 
.
 The following comments may change after the initial update.   
Market news is all over the Internet.  Therefore, we place our emphasis on technical considerations
in order to give you a different perspective on the market
   
The January issue of The Valuator is Available. 

More Free Information
1. A free daily list of the 100 highest-momentum stocks in our database is at
Momentum List
2. A free daily list of stocks that just surged in price and volume is at Surges  
3. A free daily list of stocks making new highs is at 
New Highs 
  
 COMMENTS:   U.S. stock markets surged Friday, especially the Nasdaq (technology was strong).  That index closed at 2905.66.  The last time it closed at that level was when it closed at 2931.77 on December 12, 2000.  The Dow closed at 12,862.23 for a gain of 156.82 points.  There is only about 18 points headroom from here, meaning that the Dow will have to fight to go much higher.  News events between now and Monday will likely be determinative.  There were a number of news items today that encouraged investors to buy.  The U.S. jobless rate dropped to a three-year low, the Labor Department said 243,000 jobs were added in January, the unemployment rate declined to 8.3%, the Commerce Department said that orders to factories increased 1.1% in December (order backlogs advanced 1.4%), and the Institute for Supply Management reported that its index of non-manufacturing industries rose to 56.8 in January from 53 in December.  With all these positive reports, Treasuries declined (pushing the 10-year yield up to 1.949%).  The Dow spiked up early, reaching its high by about 10:15 a.m. EST.  After that it traded in a narrow range until the close.  It was as if the Dow was stopped in its tracks by a brick wall.  Of course, resistance is rarely like a brick wall, so we may see some penetration on Monday.  Check the above chart and notice that the Dow did not accomplish a breakthrough, despite its robust behavior.  Given the magnitude of its advance, we would have expected to see more volume.  The coming weekend may have put a damper on that.  The MACD has just crossed back above its trigger line (buy signal) and the MBI is still reading a positive bias.  Our concern is that the Chande Momentum Oscillator is very extreme.  A reading of 50 would indicate that positive momentum is three times negative momentum, a reading that often occurs shortly before a correction.  Its present reading of 69 is well beyond that.  We are within a day or two of decision time, and Monday's action may be significant.  Again, we are waiting for a breakout above the overhead resistance (red horizontal lines in the above chart) or a break below the Dow's short-term trendline.  A convincing close below the trendline (not shown, but the starting point of the trendline is the low of 11-28-11) would be a significant sign of deterioration.  For the last three days, the Dow has managed to close just above that line.  The rising trendline and the overhead resistance converge in about two days.  Therefore, the Dow will have to break through one or the other within two days.  The red resistance lines in the chart are at about 12,823 and 12,880 respectively.  That means the Dow can rise another 18 points from Friday's close without really breaking through the resistance.  We see three possible scenarios.  A convincing breakout above those red lines would be a significant indication of strength.  Drifting sideways through the rising trendline would not be a sign of major weakness, but a sign of inadequate strength for a move higher.  A decline through the rising trendline, on the other hand, would be significant.  With regard to the R.C. Allen triple moving average system, the 9-day moving average (blue line in the chart) is above the 18-day moving average (red line in the chart).  The 4-day moving average has declined below the 9-day moving average, warning of a possible sell signal.
     The McClellan Oscillator rose to 171.6 (see Chart 2 below where there is an explanation.  A more exact reading is in the yellow box near the bottom of the chart).  The Summation Index (an intermediate-term indicator) rose to 2,755 (See below, Chart 2).  The MBI (see Chart 3) shows a confirmed positive bias.  The Chaiken A/D Oscillator rose with the Dow's advance (See Chart 5 and the explanation there).  The stochastic oscillator rose to a very overbought 94.7 (see below Chart 5).  The balance of money flow rose to .449 (See the comments with the chart lower on this page).  The Chande Momentum Oscillator is now very overbought (positive momentum is at an overextended reading) at 69.2 from 47.8.  See the "Dow Data" table above for the Nyse Tick reading at the close and the note at the bottom of the table).  The tick is suggestive only of what one might expect in trader sentiment at the beginning of trading the following day (unless the mood changes overnight).  Advancing issues, declining issues, and a lot of other information is in the above "Market Review" table.  
     We found 27 R.C. Allen alerts (with a 25% increase in volume) among the thousands of stocks in our database ("Up Alerts" = 22, "Dn Alerts" = 5).  With a 25% minimum volume surge requirement, the ETF Alerts scanner found 16 stocks that generated one or more alerts.  Of the 17 alerts generated, the count was 12 "Up" and 5 "Dn."  The Breakouts scanner found 100 stocks (we posted the 100 with the greatest surge in volume) that generated an alert (these are always "Up Alerts").  Our StockAlerts scanner found 111 alerts in which there was a volume surge of 50% or more.  Of those, 95 were "Up Alerts."  Some of these are very sensitive alerts more likely to be of interest to short-term traders.  Our dual moving averages Stock-Scanner found 77 stocks with one or more alerts.  Of the 93 alerts generated, the count was 57 "Up" and 36 "Dn."  Of the thousands of stocks in our database, 90.1% had positive 25-day momentum and 85% had positive 12-day momentum.  Note: We do not always post all alerts found because of space limitations.  If we truncate a list, we usually do so by listing the 100 or so stocks with the greatest volume surge on the alert.
  
       The configuration described by Wendy below is large scale.  Our daily technical discussion, on the other hand, is immediate.  Right now, the immediate configuration is bullish, and we think it is wise not to fight that trend.  However, caution is in order for a few days (be precise in your timing and be very selective).  Just focus on good setups and trigger events, and you should do well.  If we see good bullish setups, we will not be predisposed to ignore them just because of the existence of a large scale bearish pattern that does not necessarily have immediate implications (there is ambiguity with regard to timing on the large scale configuration, and remember that news can trump any technical pattern).  We expect that Wendy will soon have some comments about the market's recent behavior.         
      There have been no developments since Wendy wrote her comments below that would induce her to modify anything she wrote.  [The first sentence was here before, and we have chosen to leave it.  We do not know whether or not it is still true, but we prefer to let her speak for herself.  We are also leaving the following here for now for easy reference.]  So far, the most probable outcome of the configuration she describes below remains the same (a significant decline).  The following stocks are the ones we have been suggesting as vehicles for participating in a market decline.  The list includes FAZ, DXD, EDZ, SKF, DRV, TZA, TYP, SOXS, DPK, BGZ, and ERY.  By the way, you should also have a bullish watch list ready for when the market advances.  Even if the market does decline, the declining process is not likely to take long.  That is why you should start making preparations to take bullish positions.   
      To bring newcomers to this site up to speed about our view of the bigger picture, we should restate our cautionary warnings (the following blue text).  Wendy (our Elliot Wave guru) said last month that the current configuration of the Dow's chart at that time looked like an "expanding flat correction."  The implications of the pattern are bearish.  The big up-thrust on Thursday (10/27) was simply part of that pattern.  Wendy has found a few moments to provide additional comments.  They are as follows.
________________________
.
A FEW THINGS TO KEEP IN MIND... 
 
(Quick) Notes from a Trader’s Desk   
  by Wendy Felt, 12/01/11

1. We still haven’t broken the current downtrend (draw in a trendline across recent tops)
2. As a trader, it is important to act on what IS, not what you think ought to be.
3. A bull market will be confirmed in the next week, if we are truly in a reversal
4. As a trader, take responsibility for your decisions. 
5. Ask... am I selling/ buying because it’s the right thing to do or in order to relieve my own discomfort?  Traders trade risk, not companies.  Here is a great opportunity to look at your own risk tolerance skills.  
Remember you can always sell or buy half a position.  You are never locked into anything. 
________________________

ALL THAT GLITTERS...

(Quick) Notes from a Trader’s Desk
  by Wendy Felt, 11/22/11  
  
 ...So in my assessment, we have just recently begun the fifth wave to the downside.  Along the way, watch for upside moves that pull price action back up to the 20 day moving average.
 I am still mostly invested in leveraged ETF’s, however I’d like to share an example of a typical day trade that can be made in a market like this one.  Even though I believe we are in a down trend that will take us below the previous low of 10,404 (on the Dow) there is often intra-day wiggle room.  Toward the end of yesterday’s market, I sold most of my position in ZSL (short silver) because the stock exhibited weakness around 11:00 am, when it was not able to match it’s previous daily high.  Today I bought GOLD.  I happened to spot this beautiful set-up around 8:00 am as I was scanning through some 5 minute candlestick charts.  This stock had an exceptionally strong open, and all of it’s morning price action had been higher than the opening price bar, which was up from yesterday.  It also showed “room to run” with no overhead resistance until hitting the top of the downward gap from yesterday morning, or $110.30.
 I bought at 9:02 am, for $108.23, when I started to see confirmation of the stock’s strength.  Knowing there was some resistance at 110.30, I placed my sell limit order for 110.20.  I checked in periodically, and as the stock neared my sell price, I watched more closely.  When only a portion of my order was filled at the limit price, I waited a minute, then opted to change the sell to a market order, as I had already made a good profit.  My sell price on the remainder of the position was 110.10, at 9:48 am.
 Before market closed, I re-positioned myself to prepare for next week.  (That means back in the leveraged ETF’s... in case you are new, see FAZ, EDZ, SKF, QID).
Of note... the DJIA has failed to close above the 50-day moving average.  We have now broken down below the 150, the 100, and the 50 day simple moving averages in all three major indexes.  The low volume of today is expected, as it is a holiday week.  The market will likely respond to news on the political front tomorrow and Friday, and I am expecting more downward movement next week.  Happy Holidays and Happy Trading!!!
_________________________
.
But Before that Christmas Rally...

(Quick) Notes from a Trader’s Desk   
  by Wendy Felt, 11/09/11

 ...So hopefully much of the volatility of the last weeks is approaching an end as we finish the final shake out of wave four, a typical corrective wave which retraces most of the move from wave three.  
 I see this last wave (from early August through the present) as what Elliot describes as a “triple three” inverted expanding flat correction.  The final move in the expanding flat is typically a five wave move which breaks to a new high or low (compared to the rest of the flat), then reverses to the other direction.  In other words, I  think this is an excellent time to buy short ETF’s such as FAZ, DXD, EDZ, SKF, DRV.
 If you are looking for more technical confirmation before buying, wait for the price to close below the 20 day MA, which currently sits right near today’s low (as of 10:30 am [today], at approximately 11,853 on the Dow, 1240 on the S&P, and 2650 on the Nasdaq).  
 Wave five should be the final descent in this progression, bringing the Dow below  the 10,500 low from early October.

 Again, remember that market prediction and timing are not infallible.  The most important thing (I would assert in life as well as in the markets) is to remain adaptable.  Be aware of what current reality is, rather than attaching to what you would like it to be.  Reality is where all of our power lies.  

 In markets such as this one, emotions are quite volatile, and therefore price action is quite volatile.  I personally view this as confirmation that another descent is ahead, because I see these emotional extremes as a sign that fear is dominating more investor psychology.  Notice the confusion of many investors about whether we are bullish or bearish, the inability of the “market” to choose a direction, the price action showing large vacillation intra-day, and news events being almost unrelated to resulting price action.  This creates large price moves on the downside (panic), as well as euphoria when the markets go up (relief).  Remember desperation and panic are instincive, and not easily hidden.

 Don’t be desperate. 
 On that note, happy trading!
     
Wendy is the co-editor of The Valuator and the original tester of the Disciplined Growth Strategy.  For more on the author, see "Wendy's Trading Result" below, and read Question #10 on the Q&A page.  

_________________________
        

The Day's Biggest Price and Volume Surges (Gainers)
There is a free list of stocks that have had a price surge on the "Price Surges" page (see the link
on the left of your screen).  All have had a price surge of at least 2% plus a volume surge.  The 
name, s
ymbol, % price surge, volume, % volume surge, and 12-day momentum are given for each.

 

Company Earnings Reports that are expected tomorrow 
If "tomorrow" is Saturday, Sunday, or holiday, the following reports are
expected on the next day the market is open.
ADVS   AGNC   AHL   AMLN   APC   ATRO   BDE   BRE   BWP   CBM   CNA   CRDC   CRK   CSTR   CYOU   DNB   FN   GBDC   GHDX   HAS   HCA   HUM   IEX   ILMN   KFFB   KFN   KNXA   L   LAZ   LDR   LEG   LMNX   LNCR   MCC   MCY   NCR   NLSN   NNN   OMI   OTTR   PDEX   PHH   PKY   PLUS   PMCS   PRE   PSE   PXD   RATE   RBC   SOHU   SPF   SREV   STBZ   SYY   TLLP   TMK   TW   UDR   UNM   USAK   USG   VECO   VSAT   WNC   WPP   YUM   TW  Stocks listed: 67

 

Notice to New Visitors: We test assumptions commonly made by market "gurus" to see if they are valid.  Below, 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, prefer to use exponential moving averages rather than simple moving averages.  That is part of the "popular wisdom" of the market.  Exponential moving averages also seem to be more sophisticated.  However, few have really tested the premise that exponential averages are better because they are more sensitive to the latest behavior.  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 of the matter 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 given, and that results in more significant (and more profitable) signals.  In other words, 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.

You may be wondering why we use the Dow as a signal generator in our "Market Review." Our statistical analysis of a variety of trading systems has convinced us that the Dow Jones Industrial Average gives better trading signals for "the market" than the S&P500. The signals appear to be encumbered with less "noise." Hence, they can be more precisely defined. When timing the market with no-load index funds, use of the Dow as the reference for our timing models gave us more profitable results than use of the S&P500. We do believe that the S&P500 better represents the market as a whole. However, if we were to "time" the S&P500 Index or an index fund based on the S&P500, we would prefer to use the Dow as our reference signal generator rather than the S&P500 Index itself.  Note: Contrary to what brokerage houses and mutual funds want you to believe (because they want you to leave your money in their funds rather than move it around), it is possible to profitably "time the market." The average investor is just too emotion-bound and undisciplined Tto do it correctly. (We do not offer timing services.)

 

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.  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).  [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.]    

 

The Following Charts Are Updated Daily 

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Commodity Channel Index (CCI )
Dow Jones Industrial

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.  However, there is much more to the CCI than this.  The CCI is a powerful analytical tool.  For additional information on the CCI, see Tutorial 13.
 

Volatility Measurements 

 

Both charts on the left are based on the S&P100 Index.  The upper chart is Chaiken’s Volatility Indicator.  It calculates the 10-day moving average of the difference between the high and low for each day and then computes the percent rate-of-change of that moving average over the last 10 days.  The premise is that a widening of the range between the daily high and low indicates an increase in volatility.  Some believe that market tops are associated with an increase in volatility (because investors are expressing nervousness due to their increasing internal conflict between fear and the desire for more gain).  Market lows are supposed to be associated with relatively low volatility because investors have been disappointed so often that they don’t expect much.  Mr. Chaiken looks at it differently.  He believes that if his volatility measurement indicates there has been a significant increase in volatility over a short time that a bottom is near (because it is a 10-day measurement, it is sensitive to a panic-like selling climax).  He also believes that a gradual decrease in volatility over a long time is what you should expect as a bull market ages and approaches a top.

The lower chart on the left is a Volatility Index.  We want to know if the price action is becoming increasingly "frenzied" or "calmer" within a larger historical context.  Here we begin our measurement by computing the standard deviation in closing prices over the last 20 days.  For a historical context we use the 100-day average of the 20-day standard deviation.  This enables us to see how the current 20-day standard deviation compares to its average over the last 100 days.  

The chart on the right is the VIX.  It is a measurement of "implied risk" and differs from the two measurements on the left in that it is not a direct measurement of price volatility.  The VIX is related to the demand for puts and calls and their prices.  Traders associate readings above 45 with investor fear.  At these levels, we tend to see capitulation selling.  People are giving up what remains of their positive attitudes about the market.  This is seen as positive because it often means the market is bottoming.  A reading of 30 is associated with high volatility (there is heightened fear and uncertainty in the market).  Readings in the range of 20 to 25 are usually associated with a casual nonchalance on the part of investors.  Readings below 20 tend to correspond to a lack of investor "enthusiasm" (the market may be nearing a top).  The broken blue line is the 50-day moving average of the VIX.  In general, the VIX tends to increase as the market declines and decrease when the market is rising.  Why?  When the market is rising, it is believed to be less risky but more risky if it is on the way down.  

 Four Investment Time Frames. 

There is a saying in the market that "the trend is your friend."  The idea is that people should buy when the trend is up and sell short only when the trend is down.  In other words, it is foolish to buy when the trend is down or to sell short when the trend is up.  This is a generalization.  Traders can profitably take positions in either direction regardless of what the general trend of the market is.  However, in taking a position opposite to the general trend of the market, the trader must adjust his strategy to compensate for the increased risk.  He must also pick his stocks and entry points very carefully.  

With the charts below, we are attempting to illustrate whether the current trend is bullish or bearish within the context of four different time horizons.  The blue, purple, and green lines are simple trend indicators.  Here, we merely ask if the current trend of the market is up or down (bullish or bearish) short-term (blue line), intermediate-term (purple line) and long-term (green line).  The trends on the left are dotted to better show trend acceleration (dots spread apart) and deceleration (dots bunch together).  The right chart also shows the current trend, but from the perspective of the short-term trader.  For each investment time horizon, the question answered is a simple one.  Is the line rising or falling.  More conservative investors and traders will wait for the trend associated with their preferred investment time-horizon to be supportive of the positions they intend to take.         

 

 

The DJIA Stocks  
(Indicator charts are below the DJIA charts)

So you can get a quick impression of what's happening in the market and at the same time review the general patterns of some major stocks, here are "snapshots" of all the stocks in the Dow Jones Industrial Average.  [Note: The last change in the components of the DJIA took place on June 8, 2009.  General Motors (GM) and Citigroup  (C) were removed.  Cisco Systems (CSCO) and Travelers Cos (TRV) were added.]  The dark red line in each chart is the 50-day moving average.  Each chart covers about nine months.  To save space, no details are provided here other than the symbol (lower right corner) and the closing price (marked with a yellow highlight).  A review of the strongest ETFs should give additional information about where the pockets of strength are in the market.    

  

 

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 is inserted in the scale on the right of the chart in blue.  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
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 Chart 2 The McClellan Oscillator  is at the top of this chart.   is a breadth-of-market indicator that is effective for interpreting short-to-intermediate-term market moves.  The McClellan Summation Index(bottom part of chart) is a running total of each day’s McClellan Oscillator value.  The Summation Index is effective for interpreting intermediate to long-term market moves.  Together, they can be useful in evaluating the dynamics of the ebb and flow of the market, and in planning entry and exit points.

McClellan Oscillator readings of 150 (plus or minus) are extreme and tend to correlate well with buying and selling climaxes in the market.  The McClellan Oscillator reaches these extreme values, measuring overbought and oversold conditions, in advance of market turns.  It then passes through zero at or very soon after market turning points (to put this in perspective, extreme readings occur much less frequently than a pass through zero.  McClellan Oscillator passes through zero tend to indicate market reversals at approximately 2 to 6 week intervals).  The type of action to be taken, if any, depends on the major trend of the market (as indicated, for example, by 50 and 200-day moving averages) and on whether the move originated from an extreme reading.  Thus, in the early and middle phases of a bull market emphasis might best be placed on buy signals.  In a bull market, buy signals occur earlier, and positions can be taken when the McClellan Oscillator clearly moves out of its basing pattern, even if it is still negative.  In a bear market, sell signals occur when the oscillator moves clearly out of a topping formation, even if it is still positive.  

The amplitude of the oscillations above and below zero correlates with the general volatility of the market.  The oscillator shows distinct cycles (lasting 22 to 24 weeks) between significant bottoming formations.  Divergence between oscillator moves and conventional market indicators forecasts an impending change in market direction.  Conventional trendline theory can be applied to oscillator patterns.  For example, a triple top formation in the McClellan Oscillator forecasts a termination of the preceding up-trend.  If the Summation Index is rising (or declining), it is intermediate-term bullish (bearish if declining) and the market’s trend is up (down if the Summation Index is declining).  If the Summation Index is declining, the first positive sign will be a slight narrowing of the gaps between postings.  The second positive sign the Summation Index will give is a flattening out of the entries (this stage is sometimes skipped).  The third positive sign is a reversal in direction.  The final positive sign is a slight increase in the distance between postings.  Some investors use the latter as a buy signal (alternatively, some may use the second posting in the new direction as an early buy signal).  They view the opposite conditions as negative, culminating in a sell signal.  Because of their sensitivity, the declines and advances of these indicators can appear to be much more extreme than the actual movements in the market.     

Chart 3: Dr. Felt created this proprietary Market Bias Indicator.  He uses the MBI in evaluating the general status of the market and the nature of any investment strategy shifts he may make as he adapts to the prevailing market environment.  For example, when the market has a negative bias (as shown by the Market Bias Indicator), it might be wise to move to cash, switch to a fund that goes up while the market goes down, place stop-loss orders on all positions, or to be extra cautious about taking new positions.  When the Market Bias Indicator "says" the market is favoring buyers, it is not as likely to punish investor aggressiveness (equity growth is expected).  If the black line of the Market Bias Indicator (the indicator line) is above the horizontal line, we believe the market is favoring buyers.  Here, the Market Bias Indicator is "bullish" (it is probably okay to hold our positions or to take new ones).  In this market environment, ignore the broken red line unless you are an aggressive trader.  If you are an aggressive trader, while the black line is in "positive territory," a move above (or below) the red broken line is a buy (or sell) signal respectively.  A rising (or falling) green line must confirm either of these signals before action is taken.  The green line is the "confirmation-line" of the indicator. If the black line falls below the horizontal line, we believe the market is favoring sellers.  That is, extra caution is in order.  The Market Bias Indicator (MBI) suggests a "sale attitude" only if the green line is declining while the black line is in "negative territory" (below the horizontal line).  While the black line is in "negative territory," a move above (or below) the red broken line is a buy (or sell) signal respectively.  Again, a rising (or falling) green line must confirm either of these signals before action is taken.  The green line will shift its position over time (appearing higher or lower relative to the other lines and the horizontal line).  However, the shape of the green line will not change.  The relative placement of this line is not relevant.  Only its direction is important.  The Market Bias Indicator is sensitive enough to have given a "sell signal" two days before the meltdown in 1987, yet it avoids whipsaws better than most indicators.  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.

Chart 4: The Money Flow Indicator at the top of the chart attempts to measure money flowing in and out of a security.  The movement of money into or out of the market can give us clues about the meaning of price movement.  Look for divergence between the Chaiken Money Flow indicator and price action.  If the price moves higher and Chaiken’s Money Flow indicator moves lower, the rise in prices is not supported by an influx of money, and the rally is likely to be short-lived.  If Chaiken’s Money Flow is between zero and .10 (0 is marked by the horizontal red line and .10 is marked by the upper horizontal black line), then it is thought to be reflecting weak buying and it is not particularly bullish.  However, Chaiken Money Flow readings above .10 are bullish.  If Chaiken’s Money Flow is between zero and -.10 (the lower horizontal black line), then it is considered to be weak selling and it is not particularly bearish.  Readings below -.10 are normally considered bearish.  Readings of .20  are bullish (-.20 is bearish), and these levels are marked with 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.  The NY Index and its 50-day and 200-day moving averages are shown at the bottom.  Please note how the flow of money often precedes price action.  However, money flow and price action will sometimes diverge.  When this happens, do not trust the current price action of the index or security to continue.  When money persistently flows into a stock, expect growth (rising prices).

 

Chart 5: There are 5 sub-charts within Chart 5.  The reference for these charts is the NYSE Index.  The NYSE Index includes all stocks listed on the New York Stock Exchange.  At the top of the chart you will see the Stochastic Oscillator, a short-term indicator (the first chart within Chart 5) .  It can be helpful in estimating when a security (or index) is likely to change its direction in the near future.  Most technicians consider it a "buy" signal when the Stochastic Oscillator falls below 20 (a few technicians use 30) and then moves above that level, and a "sell" signal when the Stochastic Oscillator rises above 80 (a few technicians use 70) and then falls below that level.  The 20, 30, 70, and 80 levels are all marked.  The Stochastic Oscillator can remain above 80 (or below 20) for prolonged periods while the stock or index continues moving to higher (or lower) levels.  If the stock (or market) is non-trending (moving sideways confined within upper and lower parallel boundaries), then trades based on overbought or oversold levels should produce the best results. However, if the market is trending upwards or downwards, then the Stochastic Oscillator can be used to enter trades in the direction of the trend.  There are also more aggressive traders who consider it a "buy" signal when the blue line rises above the red line and a "sell" signal when it falls below it.  Also, look for divergences. When the market is making a series of new highs and the Stochastic Oscillator is failing to surpass its previous highs, the oscillator is giving us a warning signal.  

The Chaiken Advance/Decline Oscillator is next.  It uses the same data that is used in the accumulation/distribution line.  However, it is created by subtracting a 10-day exponential moving average of the accumulation/distribution line from the 3-day exponential moving average of the accumulation/distribution line.  The premise for the Chaiken Advance/Decline Oscillator is that a healthy price advance is accompanied by strong volume accumulation (a rising Chaiken Oscillator).  It is a positive indication if the Chaiken Oscillator declines while the Index declines (volume is not supporting the decline).  Because volume drives rallies, lagging volume during a rally is a sign of weakness (the rally is "low on fuel"). The Chaiken Oscillator was designed to indicate the flow of volume into and out of the stock (Index in this case).    

Comparison of this volume flow to the NYSE Index can help identify tops and bottoms.  For comparison purposes, we have placed a chart of the NYSE Index in the he middle of Chart 5.  Look for divergences.  When prices reach a new high or low, especially at an overbought or oversold level (see the Stochastic Oscillator), and the Chaiken Oscillator fails to make a new high then reverses direction, it is a warning that price direction is likely to change.  The converse would hold when the Index is making new lows.  Another use is to view a change in direction of the Chaiken Oscillator as a buy or sell signal, but only in the direction of the trend.  For example, if the Index is above a rising 50-day moving average (the blue line weaving through the chart), then an upturn in the Chaiken Oscillator while it is in negative territory would be a buy signal.  

Below the middle chart of Chart 5 is the volume on the NYSE.  The curved line superimposed on the volume bars is the 50-day moving average of the volume.  A move in the Index accompanied by greater than average volume is much more significant than a similar move on mediocre volume.   

At the bottom of the chart you will find the Chande Momentum Oscillator.  The use of the Chande Momentum Oscillator (CMO) is similar to that of the Relative Strength Index (RSI).  However, the Chande Momentum Oscillator measures momentum directly by combining data for both up and down days in the numerator of its equation (The RSI uses up days only in its numerator).  In addition, the Chande Momentum Oscillator or CMO does not have any built-in smoothing that would obscure very short-term momentum extremes (RSI has such smoothing and tends to obscure these details).  The dashed lines in the bottom chart of Chart 5 mark the -50 and +50 levels of the indicator.  The heavy black line is the zero line.  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.
 

Chart 6: The top portion of the chart shows the daily MACD, a popular buy/sell indicator, as it applies to the S&P500.  The MACD is the dark red line.  The basic MACD rule is to sell when the MACD falls below the broken signal line and buy when it rises above its signal line.  The MACD can give buy/sell indications in three ways: signal line crossovers (the indicator is bullish if it is above its broken signal line and bearish if it is below this line), overbought and oversold conditions (the MACD is in an Overbought/Oversold range when it pulls dramatically away from the broken line; when this occurs, it is likely that the S&P500 is overextending and will soon reverse direction), and divergences (a bearish divergence occurs when the MACD is making new lows while the S&P500 fails to reach new lows; bullish divergence occurs when the MACD is making new highs while the S&P500 fails to reach new highs (expect--these divergences are most significant if the market is overbought or oversold). 

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. 

 

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Left Chart: Oil Index     Right Chart: Gold - Handy & Harmon Base Price 

   

The dotted line in each chart is the 50-day moving average.

 

Gold: Spot Bid Price
 


Gold(Left) & Silver(Right) Charts

   

 

 

 

 

 

 

 

 

   

 

 

 
 
 
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