Market Review, Status of Indicators

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.

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

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.


US Naval Observatory Master Clock Time in New York


US Naval Observatory Master Clock Time in California

S&P500 5-Day Intraday Chart
S&P500 5-Day Intraday Chart

The Dow & Nasdaq 1-Day 5-Minute Intraday Charts  

Dow Jones Industrial Average 1-Day 5-Minute Interval Chart               The Nasdaq 1-Day 5-Minute Intraday Chart

The Buy and Sell Signals of 6 Systems 

     If the signal is new, there will be a "" at the right of the date.  There are two "Donchian" price-channel systems that may be used in tandem.  That is, some people use the 1-week system for sell signals and the 4-week (20-day) system for buy signals.  Also, some may use the signals of one of the following systems to time entries and exits for their Index-tracking ETFs.

                 Most Recent "Buy" & "Sell" Signals For The Indexes 
Signals of Wilder's Parabolic SAR (Stop-And-Reverse) System Latest Signal Date  
Dow Jones Industrial Average Buy 4/17/14  
Nasdaq Composite Buy 4/17/14
S&P500 Index Buy 4/17/14
Signals Of  The 1-Week "Donchian" Channel System  (Sensitive)Latest Signal Date  
Dow Jones Industrial Average Sell 4/7/14  
Nasdaq Composite Buy 4/17/14  
S&P500 Index Buy 4/17/14  
Signals Of  Donchian's 4-Week Channel System  (20-days)Latest Signal Date  
Dow Jones Industrial Average Sell 4/11/14  
Nasdaq Composite Sell 3/24/14  
S&P500 Index Sell 4/10/14  
Donchian Signals (5-Day x 20-Day Moving Averages) Latest Signal Date  
Dow Jones Industrial Average Sell 4/10/14  
Nasdaq Composite Sell 3/14/14  
S&P500 Index Sell 4/10/14  
R.C. Allen Signals (4-Day x 9-Day x 18-Day Moving Averages) Latest Signal Date  
Dow Jones Industrial Average Sell 4/14/14  
Nasdaq Composite Sell 3/19/14  
S&P500 Index Sell 4/11/14  
Golden Cross/Death Cross Signals (50-Day x 200-Day MA) Latest Signal Date  
Dow Jones Industrial Average Buy 1/3/12  
Nasdaq Composite Buy 1/11/13  
S&P500 Index Buy 1/31/12  

Daily Chart of The Dow & S&P500 (See Comments Below the Charts)

An Analysis of Short-Term Movement

 Illustration of R.C. Allens's Triple Moving Average Trading System Based On The S&P500 Index.

 

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. 

Notices

   1. The page previously called "Donchian Alerts" has been renamed "Watch List Alerts" because it now includes both Donchian alerts and R.C. Allen alerts for all the stocks tracked by The Valuator and that are therefore on our "Master Watch List."  Donchian Alerts subscribers now get the alerts generated by both systems. 
   2. We have just added a new service called "S&P500 Signals" that provides both Donchian Alerts and R.C. Allen Alerts for all the stocks that make up the S&P500 Index.  More than half the stocks in the Index are mid-cap or small-cap stocks.  However, when the Index is computed, more weight is given to the large-cap components of the Index.  
   3. Lower on this page, we post free samples of the "S&P500 Signals" list.  A Section of 45-stocks is displayed, but not all stocks displayed will have an alert.  The selection posted will change from time to time.

Comments Reference the Above Charts

Thursday, April 17, 2014.  The Dow finished the day at 16408.54 for a loss of -16.31 points or -.10%.  The low for the day was 16368.14 (-56.71 points), and the high was 16460.5 (35.64 points).  Stocks closing with a gain numbered 19 and stocks closing with a loss numbered 11 (63.3% were gainers and 36.7% were losers). Today's total volume for the Dow stocks (unweighted) was greater than yesterday's volume by 15.9%.  Our "Watch List," is made up of the same stocks that are tracked by The Valuator and by our "Donchian Alerts" scanner. Those 502 stocks, underwent the following changes. The Average Price Change was = 0.13%, Rising Stocks = 285, Falling Stocks =  217, Percent of Stocks Rising = 56.7%, Rising Stocks = 1.31 x Falling Stocks, Average Volume Change = 15.2%. In the table above, we list 6 signal-generating disciplines for each of three major Indexes.  Of those, 5 generated a new signal today. 
     Those who applied for unemployment-insurance benefits numbered less than expected • Manufacturing sentiment in the Philadelphia area improved in April ▬ Morgan Stanley MS rose 3.4% after beating profit estimates • Sabre SABR rose 3.9% on its first day of trading • General Electric GE rose 2.1% on earnings that were a penny above estimates • Weibo WB surged 21% on its debut.
     The Dow (See the DJIA chart above) pushed a little higher, but it could not maintain altitude in the face of selling pressure along the lower boundary of "T" (the lower dashed red line).  U.S. markets are closed Friday (Good Friday).  Because traders will be "locked" into positions over a long weekend, and because that is plenty of time for a Russian invasion or the surfacing of some gloomy economic news, a lot of investors sold their "iffy" positions or repositioned themselves ahead of the weekend.  That explains the surge in volume with little progress, either up or down.  The Dow also stayed above the rising purple trendline the entire day.  That is a plus, because that line will now begin to offer some support.  We are not sure that the buyers along that line can absorb all the shares the sellers along "T" will begin to unload as the Dow attempts to continue its advance.  In other words, as the Dow climbs, it is possible the Dow will move to the right of or below the rising purple line.  Only time will tell.  There has been a change in the R.C. Allen system as we use it.  Earlier, the 9-day MA crossed below the 18-day MA and the 4-day MA was below both (a sell configuration).  However, the 4-day moving average has just crossed back above the 9-day average.  That means the 4-day average is no longer confirming the sell signal (it is not a buy signal, but it is not advising additional new bearish positioning).  [R.C. Allen did not say he used the direction of the 4-day average to confirm a 9-day average cross of the 18-day average.  That is a variation on Allen's system that we prefer over the original system because it cuts down on whipsaws]
      The S&P500 (See the S&P500 chart above) also spent the day above the rising purple line.  On the Dow chart, we drew an upper and lower line marking the boundaries of "T."  In the S&P500 chart the line "K" is similar to "T."  The resistance of "K" begins lower than that line, and we could have drawn another parallel line to mark the leading edge of that band of resistance.  Were we to do so, that line would be slightly above the high of the Index for today.  The rising purple trendline has the same weaknesses that we saw in the similar line on the chart of the Dow.  In each case, the rising trendline is what is known as an "internal" trendline.  That is, each has been penetrated on more than one occasion, but each has given evidence of an ability to offer resistance to decline.  They are not as strong as they would be if they connected only lows (external), but the length of time they have been in "service" gives them a little clout.  The dashed purple line will now begin to offer some support.  We estimate that the S&P500 will advance again on Monday (assuming there is no negative news in the meantime).  As with the Dow, the 4-day moving average (green line) is rising, and it has crossed back above the 9-day moving average.
      The MBI generated a buy signal on 2/24/14 and it registered a positive bias for the market on 2/25/14.  Intermediate-term and long-term, it has been in a buy mode since 2/25/14.  Right now, it is neutral short-term.  The Advance/Decline line (NYSE) rose about 1.5%.  Chande's Momentum Oscillator rose to -7.6 ("extreme" readings start at ±50, and 0 is neutral).  The stochastic oscillator rose to 52.5 (neutral).  The CCI rose to 32 (Click on the CCI link at the left of your screen for more).   On Balance Volume declined about ¾%.  Chaiken Money Flow declined to -.11220.  [The latter two measurements reflect a modest selling of shares and the consequent movement of cash out of the market] The MACD gave a sell signal 4/7.  It underwent additional convergence today (a positive).  The McClellan Oscillator rose to 44.9.  The Summation Index rose slightly (a positive).  See the McClellan Oscillator and Summation Index by clicking their link on the menu at the left.  There is a detailed explanation of these indicators there.
    
     Now, let's look at the 20-day hourly chart
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20-Day Dow Chart at 1-Hour Intervals

20-day 1-hour interval chart of the Dow Jones Industrial Average.


     The opening level is indicated by the solid horizontal red line.  The combination of a prolonged weekend and resistance along "A" were too much for the Dow to overcome.  However, it did manage to sustain its position near "A."  The pattern suggests that buyers are a little more aggressive than they have been recently, and that there may be enough buying interest to absorb shares that will be available at "A."  If they absorb the shares that will be offered, prices will rise above the line we call "A."  On an hourly basis, "A" is somewhat daunting to traders, though the Dow has been able to climb above it before and remain there a few days.  The market may need more additional positive news to break through.  We will see.  The 3-minute interval chart below shows the weakness that set in during the last two hours of trading.

Wrap-Up: (Reviewed and modified as needed on Thursday, April 17, 2014)
The condition of the market is greatly improved.  If we do any buying, we will be interested in stocks that are in a good setup configuration.  Also, we want stop loss placement to be such that a triggered stop will not result in a loss that is more than 50% of our expected gain when taking a position.  We suggest that those who have a success rate below 55% not enter trades in which the projected loss is more than 1/3 the anticipated gain.  Our own success rate is relatively high, allowing us to take positions with greater loss on a triggered stop loss
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The Dow Today at 3-Minute Intervals

One-Day Chart Of The Dow 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. These charts illustrate three popular systems as applied to the Dow.  Explanations of the charts are below the charts

Donchian s and Wilder's SAR


     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 Donchian's standard 4-week rule.  It can be used in combination with the 1-week rule near the top of the page (one of the 6 signal generators in the table).  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 four-week system was originally intended to be a complete system in its own right.  Its rules are as follows.  You cover short positions and buy long when the price moves above the highs of the four previous weeks (20 trading days), and you sell long positions and sell short if the price falls below the four previous weeks.  Of course, you do not have to go short.  You can simply buy and sell instead.  The highs and lows of the previous 20 days are marked with red channel lines for easy reference.
     The three systems illustrated here (the SAR, the 5 X 20 system, and the 4-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.  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.]

Donchian & R.C. Allen Signals

Our algorithm scans the stocks that make up the S&P500 for signals generated by Donchian's 5x20 dual moving average system and R.C. Allen's 4x9x18 triple moving average system.  We post about 45 entries here out of the 500 in the Index.  The sample posted may come from the "A" to "J" part of the list or from the bottom of the list.   The list may change at irregular times.  These lists are free for our visitors.

If you are interested in the complete list of 500 stocks updated daily, it is available by subscription.   For details, click on "Products & Prices" (third tab from the top on the left of your screen).  Look for "S&P500 Signals."   

Donchian & R.C. Allen Signals for A Few Stocks In The S&P500                 Updated Sat p.m. After Close     
Company Symbol Close Volume Vol Ch% Donchian R.C. Allen
ACCENTURE CL A ACN 78.90 4,428,126 17.4    
ACE  ACE 100.94 1,008,639 -7.6    
ADOBE SYSTEM ADBE 64.04 3,746,019 11.1    
AES  AES 14.26 2,902,545 -47.8    
ALLEGHENY TECHNOLOGIES ATI 41.24 1,807,260 -15.1    
ALTERA ALTR 34.46 4,006,888 13.9    
AMERICAN ELECTRIC POWER AEP 51.73 2,165,298 -14.3    
AMETEK AME 52.03 826,977 0.9    
APACHE APA 85.11 4,798,124 41.1 X-Up  
APARTMENT INVESTMENT MGT CL A  AIV 29.63 1,158,969 -49.1    
AUTONATION AN 54.99 1,494,725 35.4   X-Up
AVALONBAY COMMUNITIES  AVB 133.64 1,200,910 26.9    
AVERY DENNISON AVY 50.68 521,688 -25.5    
AVON PRODUCTS AVP 14.51 4,610,007 52.8    
BERKSHIRE HATHWAY CL B BRK.B 127.18 4,411,979 7.3 X-Up  
BOEING BA 127.92 3,449,510 22.1    
BOSTON PROPERTIES  BXP 117.43 690,672 -41.6    
C R BARD BCR 139.49 555,554 -13.4    
CAMPBELL SOUP CPB 44.54 762,192 -14.8    
CHARLES SCHWAB SCHW.K 27.04 7,389,420 -30.6    
CHIPOTLE MEXICAN GRILL CMG 519.61 3,884,290 511.9    
CITRIX SYSTEMS CTXS 56.00 1,368,267 -32.7    
COACH  COH 49.48 3,144,219 51.1    
COCA-COLA ENTERPRISES CCE 45.19 2,331,421 -49.5    
COMERICA CMA 48.46 1,541,950 13.3    
CORNING GLW 21.04 11,158,246 -0.6   X-Dn
CSX  CSX 28.15 8,658,704 -47.5    
DEERE  DE 93.40 2,104,270 5.4    
DISCOVER FINANCIAL SERVICES DFS 56.86 3,527,110 60.4    
DR PEPPER SNAPPLE GROUP DPS 52.54 1,124,344 -25.5    
DUKE ENERGY DUK 72.57 2,851,793 10.0    
EBAY  EBAY 54.97 7,516,818 3.8    
EDISON INTERNATIONAL EIX 56.38 3,057,706 5.3    
EQUITY RESIDENTIAL  EQR 57.50 3,247,516 -2.6 X-Dn  
EXELON EXC 36.06 6,481,440 79.7    
EXPEDITORS INTERNATIONAL OF WASN EXPD 40.01 1,635,863 33.2    
EXPRESS SCRIPTS HOLD ESRX 72.29 5,336,958 2.7    
F5 NETWORKS FFIV 108.40 1,042,681 18.4    
FLOWSERVE FLS 79.04 888,262 1.0    
FRANKLIN RESOURCES BEN 53.70 1,968,705 -31.0    
FREEPORT MCMORAN COP & GLD FCX 33.01 7,186,923 12.1    
GANNETT GCI 26.87 4,083,185 54.9    
GENERAL DYNAMICS GD 109.06 1,556,750 30.3    
INTERCONTINENTALEXCHANGE GROUP ICE 198.27 632,922 -38.2    
JM SMUCKER SJM 96.70 428,863 -17.9    
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Market Indexes & Measurements Updated Thu p.m. After Close  4/17/14
Name Last   Name Last
10 Y TSY YLD NDX 28.84   NASDAQ NMS COMPOSITE INDEX 4,095.52
30 Y TSY YLD NDX 35.17 NASDAQ TOTAL VOLUME 1,864,912,512
6MB T-BILL 0.05 NEW YORK STOCK EXCHANGE ADVANCES 2,409
ARCA PHARM INDEX 492.75 NEW YORK STOCK EXCHANGE DECLINES 618
CBOE MKT VOLATILITY IDX 13.36 RATIO OF ADVANCES TO DECLINES 5.830
DJ COMP AVERAGE 5,747.56 NEW YORK STOCK EXCHANGE NEW HIGHS 106
DOW JONES INDU AVERAGE NDX 16,408.50 NEW YORK STOCK EXCHANGE NEW LOWS 16
DOW JONES UTIL AVERAGE NDX 543.00 NEW YORK STOCK EXCHANGE UNCHANGED 129
EuroDollar 1.38 NEW YORK STOCK EXCHANGE VOLUME 674,593,856
GOLD BASE PRICE HANDY&HARMAN 1,301.50 NYSARC BIOTECH 2,446
Japanese yen 102.22 NYSE ARCA TECH 100 INDEX 1,784
NAS COMPUTER NDX 2,037.13 NYSE COMPOSITE 10,532.80
NASDAQ 100 INDEX 3,534.53 NYSE MARKET DIARY ISSUES TRADED 3,156.00
NASDAQ MARKET DIARY ADVANCES 1,868.00 S&P 100 INDEX 825.68
NASDAQ MARKET DIARY DECLINES 752.00 S&P 400 INDEX 1,351.42
NASDAQ MARKET DIARY ISSUES TRADED 2,721 S&P 500 INDEX 1,864.85
NASDAQ MARKET DIARY NEW HIGHS 33 SILVER BASE PRICE HANDY&HARMAN 19.60
NASDAQ MARKET DIARY NEW LOWS 28 Swiss franc 0.88
NASDAQ MARKET DIARY UNCHANGED 101 TLR SHORT TERM 0.25
NASDAQ NMS COMPOSITE INDEX 4,096 US PRIME 3.25
Stochastic Oscillator for NYSE Composite 37.4   Chande Momentum Oscillator for Dow Industrials  -15.2
Stochastic Oscillator for the S&P500 Index 30.8   Chaiken Money Flow for the Dow -0.112
Stochastic Oscillator for the Dow 56.8   The CCI for the NYSE Composite -32.5
Chande Momentum Oscillator for NYSE Composite  -14.3   The CCI for the Dow Industrials 32.0
Wilder's SAR for The Dow 16015.32   Wilder's SAR for the NYSE Composite 3169.52


Market Review Indicator Chart

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.
 
NOTICE--Originally, we presented each of the following 6 charts (with its explanation) in isolation from the other charts. However, we have decided to try a new approach that we think might enhance overall comprehension. Instead of showing each chart separately, we now show the following 6 charts simultaneously. That way, you won't have to spend a lot of time scrolling up and down to figure out how the charts counter or reinforce each other. Each of the charts is labeled (Chart 1, Chart 2, and so on). The label for each chart is in a blue box near the bottom left corner of the chart. Below the six charts there is a set of links, each one of which will take you to a discussion of one of the charts. Each discussion includes two links back to the charts. For example, the label at the beginning of each discussion ("Chart 1," etc.) is a link back to the charts. At the end of each discussion is another link back to the charts. We provide two links back to the charts because some of the discussions are lengthy, and we want to make it easy for you to navigate back and forth quickly. Previously each chart was viewed in isolation. It was not possible to see them all at the same time. This way, a click will take you to an explanation, and a click will take you back to a view of all the charts. This should make it easier for you to get a sense of the overall status of the market


Go back to the comments below the main Dow chart.    Go back to the Wrap-Up

Charts of Interest Rate Spread, Relative Volatility Index, Market Bias Indicator, Stochastic Oscillator, On Balance Volume, MACD, Chande Momentum Oscillator, Chaiken Money Flow, and the S&P500

 Read the discussion of Chart 1     Read the discussion of Chart 2     Read the discussion of Chart 3 
    Read the discussion of Chart 4     Read the discussion of Chart 5     Read the discussion of Chart 6    


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 2The 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.
1. Act on buy signals only when the RVI is >50
2. Act on sell signals only when the RVI is <50
3. If you ignore a buy signal, enter long if RVI is >60
4. If you ignore a sell signal, enter short if RVI is <40
5. Eliminate a long position if the RVI falls below 40
6. Eliminate a short position if the RVI climbs above 60
The RVI calculated here is based on the Dow Jones Industrial Average. It is included here as a means of confirming (or not) other market indicators. Back to Charts

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

Trading & Performance

     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. 
     You must focus on cutting losses quickly, finding good setups, and looking for trigger events. When it is time to sell, do not talk yiourself out of it or "argue" with the evidence. It is not necessary to sit "glued" in front of your computer. Simply enter your trades and set your stop losses. Then, check your positions in the evening and update stop losses when necessary.  Portfolio returns above 50% per year can be achieved by trading relatively high quality stocks priced above $5 in a cash account.  People tend to confuse what it takes to gain 60% in a year in a portfolio 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 those stocks 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. In other words, they buy just before a surge in price or when the stock is already surging, but they may hold that position for only a week or a month (or however long the surge lasts). 
     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.  Learn about setups to spend your time more efficiently and to make your time invested more productive.
 Examples of some setups can be found near the bottom of the "Stock Alerts" page.  For more, we suggesrt that you read Question #10 on the Q&A page.


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