Stochastics, Chaiken A/D and CMO

.     The chart below is intended to illustrate the use of the Stochastic Oscillator, the Chaiken Advance/Decline Oscillator, and the Chande Momentum Oscillator.   These indicators are included in the "Market Review," where they are current and updated daily.  We wanted to preserve this chart to illustrate how powerful these signals can be when they converge.  The explanations are a bit more detailed on the "Market Review" page than you will find at most other Web sites, but read the rest of this first.  

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Weekly Chart of the General Market (The NYSE Index)

 

Notice that the arrow below the NYSE Index marks a new relative low.  However the low marked on the Chaiken Advance/Decline Oscillator is not as low as its previous low (a divergence indicating a probable rise in the market).  The same point on the CMO shows a higher low than in July (a divergence).  An extreme reading of ±50 would also suggest a short-term peak (high or low) in the market.  The Stochastic Oscillator at the top of the chart shows a bullish crossover.  Together, these indicators suggest that though the market has been in decline (see the 50-day moving average in the vicinity of the arrow) a positive move of unknown duration and magnitude may be just ahead.  The market subsequently began a significant up-trend.  We have applied these indicators to the NYSE Index in this "tutorial," but it should be obvious that the same observations and interpretations would apply to the analysis of individual stocks.  In using these indicators on the NYSE Index, we hope to illustrate how we use them in support of our own disciplines.  We use them to interpret and analyze the market in general.  That analysis serves as the "environment" within which we apply our disciplines and strategies to individual stocks.  Our discipline incorporates both levels.  The conditions that prevail at the market level modify our strategies for buying and selling and also our sub-disciplines and tactics at the stock level. ~ Dr. Felt

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