The McClellan Oscillator, Summation Index, volatility measurements, the CCI, Chande Momentum Oscillator, Chaikin's Money Flow indicator, Chaikin's Advance/Decline Oscillator, MACD, interest rate spread, stochastic oscillator, and the gold & silver charts and their explanations are now on this page. All indicators can be reviewed by simply scrolling down this page.
1. A free daily list of high-momentum stocks is at Momentum List 2. A free daily list of stocks with high Relative Strength High RSI Stocks 3. A free list of stocks with a volume surge is at Volume Surges 5. Free interactive stock charting is at Charts.
See how we use "setups" to maximize our profit potential with our scanner reports
Time In New York
The time In California is 3 hours earlier than the above time
Daily Chart of The Dow Jones Industrial Average
An Analysis of Short-Term Movement
Green = 4-day MA, Blue = 9-day MA, Red = 18-day MA, Black = 50-day MA
We decided it would be informative to demonstrate here R.C. Allen's system. An "UP" alert occurs when the 4-day MA (solid green) is above the 9-day MA (solid blue). The actual "buy" signal occurs when the 9-day MA crosses above the 18-day MA (solid 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 "Sell" signal. Please use the "R.C. Allen Alerts" tab on the left of your screen for a more complete explanation of the system. This chart shows only a few months so you can more easily see details of recent action and a clearer view of the moving average alignments. The broken green, blue, and red lines are the 5-day, 10-day, and 20-day moving averages respectively.
Notice to Subscribers: The February issue of The Valuator is online.
Changes: 1. We have added the above real-time stock-tickers. 2. We have added a page titled "Market Quotes & Data" that can be reached by clicking on the link that is below the "S&P 500 Data" table. 3. We have returned the 4-day, 9-day, and 18-day moving averages (solid green, blue, and red lines respectively) to the above chart. We have also added the broken green, blue, and red lines to the chart to represent the 5-day, 10-day, and 20-day moving averages respectively. 4. We have expanded on the information given in this "comments" section. 5. We have added to the "S&P 500 Data" table lower on this page the symbols for the 10 biggest gainers (blue) and the 10 biggest losers (dark red). }
Updated after close on 02/22/2018 -- The Key Bullish Intraday Level to watch for Friday is 25,016. The Key Bearish Intraday Level to monitor is 24,908.50. If the Dow is above the Key Bullish Level (or below the Key Bearish Level) for more than 30 minutes of the first hour of trading, it will have an 80% probability of closing higher (or lower) for the day. These probabilities assume there are no news events that modify investor sentiment between now and the close on Friday. See Discussion of "Key Intraday Levels" & Pivot Levels
For Friday, if the action of the Dow relative to the above Key Intraday Levels indicates a higher close, the highest probability scenario is that it will close in the range between 24,963 and 25,241. If the action indicates a lower close, the highest probability scenario is that it will close in the range between 24,684 and 24,963. There is a 30% probability that the Dow will move higher than or lower than the range given, but if it does either, it will likely be the result of news events.
The following levels of resistance and support have been calculated. These are not static levels but dynamic. Friday there will be overhead resistance at 25,128. Above that, there will be resistance at 25,293. The next higher resistance will be at 25,430. There will be extremely light resistance at the 5-day moving average (broken green line in the above chart). Selling activity will begin to be experienced at 25,043. If the Dow approaches the 10-day moving average (broken blue line in the above chart), buying activity will begin at 24,740. If the Dow were to approach the 20-day moving average (broken red line in the above chart), selling activity would begin at about 25,179. There are pivot-point supports at 24,826, 24,689 and 24,524. These are S1, S2, and S3 respectively. Pivot-point supports and resistances are explained below under "Pivot Points." All these levels of resistance and support are in addition to levels described earlier or illustrated in the chart. See the last paragraph of this report (blue text) for an explanation of static and dynamic support and resistance levels.
Signals & Outlook: 1.) The last short-term signal for our market model was a buy signal. Currently, our model is against taking any action but prefers holding current positions and waiting for further developments. Let stop losses do the selling. We have a situation where the short-term buy signal occurred in the context of an intermediate-term bearish environment. 2.) The last intermediate-term signal for our market model was a sell signal. The current intermediate-term status of our market model is negative. Therefore, it makes sense to lighten up on weaker positions to reduce risk exposure. 3.) The last long-term signal for our market model was a sell signal. The current long-term status is negative. Therefore, selling weaker positions to reduce risk is a reasonable approach at this time.
The Dow and the S&P 500 closed higher on positive labor market data, which probably countered investor angst over rising inflation and bond yields. However, shares closed off their highs as weakness developed among financial and health-care shares. Investors have been particularly sensitive to the prospect of accelerated inflation, rising interest rates, and higher 10-year bond yields (now about 2.92%) ever since a recent report that wages are rising aggressively. Initial U.S. jobless claims fell from 229,000 to 222,000 in the seven days ended Feb. 17. We’re seeing the market adjust to the anticipation of inflation and higher rates, but these new realities are a byproduct of an improving economy, one that’s growing faster than normal.
Static support does not change from day to day. For example, if a stock declines to a certain level several times ($50, for example) and then rebounds from that level, it is said that there is support at that level. The fact that buyers enter the market at that price makes it a level of support. On the other hand a moving average is a dynamic support, since it changes from day to day. For example, a 50-day moving average may be at $50 on Monday. That does not mean it will act as support at that level on Tuesday. If the 50-day moving average is rising, then support there will be somewhat above $50 on Tuesday. No one can say where the 50-day moving average will be on the following day. Therefore, based on current momentum figures, we compute where a moving average support is likely to be the following day. This will be the approximate level at which the influence of buying activity will begin to be exerted, even if the moving average is slightly below that figure by the close. However, if the Dow closes more than 60 points below the level reported here, it is probable that the support at that level has failed.
Support and Resistance You may wonder why we are always talking about resistance and support. The fact is that nobody knows what the market will do next. However, knowing the location of support and resistance is extremely helpful to tactical positioning, regardless of what the market does. It is the most important, useful, and reliable information a trader can have. For example, placing a stop loss just below support can minimize loss if the market works against the position. That reduction in risk can enable a person to take a position when it would not be advisable otherwise. A stop order to buy placed just above resistance can enable a person to take a position early on a breakout with minimum risk and without a need for constant monitoring. Also, knowledge about the strength and location of support or resistance can be a help in estimating the probabilities associated with the market's next move, or how far it is likely to be able to continue in a particular direction.
Updated after close on Thu, 2/22/18 -- The total number of issues traded on the NYSE was 3022. Of those, 1525 advanced, or 50.46% of the total. That is a change of 12.55%. There were 1387 issues that declined, or 45.89% of the total, a change of -12.88%. The total volume of shares traded on the NYSE declined by 6.13%.
percentage of stocks that advanced today =
percentage of stocks that declined today =
of stocks that were unchanged today = 2.4%
|The average loss
of the declining stocks = -0.98%.
|The average gain of
rising stocks = 1.05%.
50-day average volume of all stocks in the S&P 500 = 4,425,386,355.
total volume of the stocks in the S&P 500 = 2,062,237,818.
|Yesterday's total volume
this volume has declined (-5.93%).
percentage of S&P 500 stocks at or above their 50-day moving average =
percentage of S&P 500 stocks below their 50-day moving average =
|Stocks with a
rising 10-day moving average = 58.6%.
|Stocks with a
declining 10-day moving average = 39.6%.
Gainers: CHK SCG
SWN FTI HES
RIG MUR EXR
KEY BBBY.O NAVI.O
TGNA.K AAP LKQ.O
SE APA FTR.O
|Do not include extenders like
".O" when generating a chart.
Extenders are sometimes added here to indicate the listing exchange.
gainers & losers lists consist of the 10 biggest gainers and 10 biggest
losers of the S&P 500 (on a percentage basis).
Go to Market Quotes & Data
Chaikin Money Flow and A/D Oscillator
These charts have not been updated for Friday. They will be after we collect the needed data.
A pivot point is a price level that is used by traders as a predictive indicator of market movement. A pivot point and the associated support and resistance levels are often turning points for the direction of price movement in a market. Prices tend to swing between two levels. For example, if a price is right at the first level of support ("Support 1"), the probability is that it will move back toward the "pivot point" These levels are very weak, and have most relevance for intraday action. In an up-trending market, the resistance levels may represent a ceiling level in price above which the uptrend is no longer sustainable and a reversal may occur. In a declining market, the support levels may represent a low price level of stability or a resistance to further decline. Pivot points were originally used by floor traders in setting key levels. Before the market opened, floor traders would calculate the pivot points for the day. With these pivot points as the base, additional calculations were used to set support 1, support 2, resistance 1 and resistance 2. These levels could then be used as trading aids throughout the day. The resistance levels are where sellers are likely to enter the market, depressing prices. Therefore, it is significant if a stock can push its way through the selling pressure. It takes buying demand to push shares higher through levels at which sellers are waiting. Likewise, the support levels are where buyers are likely to enter the market, exerting upside pressure on prices. Therefore, it is significant if a stock declines through the buying pressure. It takes significant share selling for shares to continue dropping, even through levels at which buyers are waiting.
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, or commodities. It can be done simply by buying and selling stock. 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. That means by the time you read this, the performance date may be long past. That cannot be avoided without regular updates, and this is a one-time report.
After brokerage fees, her net return for the year (2009) was 58%. All she did to obtain this return was to buy and sell stocks in a very bad market. She simply cut losses quickly, focused on good setups, and looked for trigger events. When it was time to sell, she did not talk herself out of it or "argue" with the evidence. She also did not sit "glued" in front of her computer. She entered her trades and set her stop losses. Often, the only time she could check her positions was long after the market closed. She did not have to agonize about margined positions held overnight because they were not part of her discipline.
It might also be worth mentioning that to optimize liquidity, to minimize the spread between bid and ask, and for risk-control reasons, Wendy prefers to avoid stocks that trade for less than $5. Most of the stocks she trades are followed in The Valuator. Wendy is a very private person who does not want to report her returns every year, so there is no plan to update this performance in future years. This report was posted shortly after the data was available, and it will be left here for future visitors.
Please be aware that she did have major distractions during this year that almost certainly got in the way of her achieving a significantly greater return. In other words, this was by no means the best she could do. However, she allowed us to reveal her performance anyway in order to encourage others and to show that returns above 50% are achievable (even under less than ideal conditions).
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 highly 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 Buy and Sell Signals of 6 Systems
These systems cover different investment time-horizons. Each system uses two moving averages, with the exception of the R.C. Allen system, which uses three averages. If the short moving average (MA) is above the long MA, the configuration is considered to be "Bullish" because the current momentum has taken a more positive aspect relative to the longer MA. A bullish pattern is indicated by an up arrow ↗. ↗ . If the short MA is below the long MA, the configuration is "Bearish" in its implications. A bearish pattern is indicated by a down arrow ↘. Thus, the direction of the arrow indicates the direction of the last crossover event. When a signal is generated, the word "Buy" or "Sell" will appear. These signs are not recommendations. They merely indicate the crossover event (the short MA has just crossed the longer MA), indicating a change from a bullish to bearish outlook or from a bearish to bullish outlook. When the signal is generated, there will be a "◄" at the right of the word "Buy" or "Sell" to draw your attention to the event. The red arrow will display for only the day on which it is generated. The following day the arrow will be gone when the table is updated, and the up arrow or down arrow will replace the word "Buy" or "Sell." The down arrows are shifted to the right to make it easier to spot the difference at a glance. The table should be of interest to short-term, intermediate-term, and long-term investors. For example, when the outlook for the S&P 500, Dow, or the Nasdaq Composite Index is "Bullish," the general trend of the Index is supporting bullish positions in those and stocks similar to those in the indexes. Also, some people may use the signals of one of the following systems to time entries and exits for their Index-tracking ETFs. That is, these signals may be of use in timing when to be in and when to be out of the market, based on the preferred system or investment time-horizon.
Indexes And Measurements
Stocks In The Dow
The following charts cover the last 9 months. The red line in each is the 50-day moving average. Because there are so many stocks in a small space, we have not included the names of the companies. However, the symbol for each is in the lower right corner of each chart. The closing price for each is in a box on the right side of the chart. The charts are intended to give you a quick overview of the Dow stocks and an idea of which industries may be doing well or poorly. You can get a close-up of these charts by pressing the "Ctrl" key and the "+" key at the same time (pressing the "-" key will shrink the image). Most of the items in the table below the charts are self-explanatory. The "Up Volume" entry is the percentage of the total volume that is associated with an advance. Therefore, "Up Volume = 65%" means that 65% of the total volume of the Dow stocks was up volume and 35% of the total was down volume. Note, also, that in the lower right-hand corner of the table the Tick and TRIN are indicated for the NYSE.
TRIN is (The number of advancing stocks/The number of declining stocks)/(The composite volume of advancing stocks/The composite volume of declining stocks). A reading above 1.00 is bearish, a reading below 1.00 is bullish and a reading of 1.00 indicates a balanced market. The more the TRIN deviates from 1.00, the greater the contrast in force between buying and selling on that day. A reading that exceeds 3.00 is interpreted as indicating an oversold market and that bearish sentiment is overdone. A reading below 0.50 is interpreted as indicating an overbought market and that bullish sentiment is overdone. The figure may vary a little with different publishers depending on when the calculation is made. Data often keeps trickling in after the market's "official" close.
Tick is the difference between the number of stocks that closed higher than their previous trade (i.e. closed on an uptick) and the number of stocks that had closing prices lower than their previous trade (i.e. closed on a downtick). A closing tick is thought to indicate strength or weakness in the broad market. Because buying at the close generally indicates market strength, a series of positive closing ticks indicates bullishness, and a series of negative closing ticks indicates bearishness. The most widely watched closing tick is that of the New York Stock Exchange (NYSE).
Chande Momentum, Stochastic Oscillator, Relative Strength, CCI, &
Demand Index for the Dow, Nasdaq, and S&P500
Market Review Indicator Charts
Traders and investors are advised to make frequent reference to the following charts and their 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 evolving 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 change 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. Below the charts is a set of blue links. Each link will take you to an explanation of a chart. At the end of the explanation is a blue link that will take you back to the charts.
Market Bias Indicator
The Market Bias Indictor (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 blue 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. For example, when we focused it on the Dow back in the 1980's, it was able to give a "sell signal" two days before the meltdown in 1987. Though it is sensitive, 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. Back to charts
The MACD (Moving Average Convergence/Divergence) is a popular buy/sell indicator. Here it is applied to the broad market (NYSE) because it includes all the stocks on the NYSE rather than just those in the Dow or the S&P500. The MACD is the dark blue line. The "trigger line" is the dotted red line. The latest reading is in the top left corner of the chart (blue). The basic MACD rule is to sell when the MACD falls below the broken signal line and buy when it rises above its signal line. A crossing of the zero line is a confirmation of the signal. The MACD can give buy/sell indications in three ways: signal line crossovers (the indicator is bullish if it is above its broken signal line and bearish if it is below this line), overbought and oversold conditions (the MACD is in an Overbought/Oversold range when it pulls dramatically away from the broken line; when this occurs, it is likely that the market is overextending and will soon reverse direction), and divergences (a bearish divergence occurs when the MACD is making new lows while the market (as measured by the S&P500, or NYSE) fails to reach new lows; bullish divergence occurs when the MACD is making new highs while the market fails to reach new highs (these divergences are most significant if the market is overbought or oversold).
Though divergences can be used as an indicator of a potential trend reversal; they can also be used as an indicator of a trend continuation. When there is an uptrend, a reverse divergence (or hidden bullish divergence) occurs when price is making a higher low, but the oscillator is indicating a lower low. This suggests that the current uptrend is likely to continue. In a downtrend, a reverse divergence (or hidden bearish divergence) occurs when price makes a lower high, but the oscillator is indicating a higher high. This suggests that the current downtrend is likely to continue. Back to charts
Interest Rate Spread
The Interest Rate Spread chart shows the pattern of change in the spread between short-term and long-term Interest rates over recent months. The last reading (multiplied by 10) is inserted in the scale on the right side of the chart in a yellow box. 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 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 the short-term rate is enough higher that the interest rate spread is -1% or more, cash might be your best option. If the 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. Back to charts
The Stochastic Oscillator chart above is referencing the NYSE Composite Index. This Index includes all stocks listed on the New York Stock Exchange. The Stochastic Oscillator is 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 dotted 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 Chande Momentum Oscillator is in the same chart. 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 (the RSI has smoothing and tends to obscure these details). The black solid line is the zero line. The dashed horizontal lines in the chart mark the -50 and +50 levels of the indicator. The Chande Momentum Oscillator indicates overbought (+50) and oversold (-50) conditions. For example, at -50 the downside momentum is 3 times the upside momentum, and at +50 the upside momentum is 3 times the downside momentum. These levels are extreme and tend to be followed by a reversal of the Index (though the reversal may not be immediate). 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 movng 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 be used to define a 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. The CMO in the chart is based on 14 days. The dotted black line is the 10-day simple moving average of the CMO. This line can aid in initiating a trade before the CMO crosses the zero line. For example, a person could buy when the CMO crosses above the average instead of waiting for it to cross zero. He could sell when the CMO crosses below the average. Just be aware that this approach can give premature signals. Back to charts
Commodity Channel Index or CCI (NYSE Composite)
The Commodity Channel Index (CCI) measures the deviation of a security's price from its statistical mean. The above chart is the 20-day CCI. High readings indicate that prices are relatively high in comparison to average prices, and low readings indicate prices are relatively low in comparison to average prices. The name of this indicator is somewhat misleading, since it is not limited in its usefulness to only commodities. It can be used with any security. 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.
Lambert designed the CCI so that approximately 70 to 80 percent of CCI values would be between -100 and +100. Therefore, a move that takes the Index outside this range indicates unusual strength or weakness that can be a prelude to an extended move. Think of these levels as indicating a bullish or bearish bias. Some consider the CCI to be favoring the bulls when above zero and the bears when it is below zero. The problem with this is that depending only on a cross of the zero line to determine a bullish or bearish disposition can subject a person to many whipsaws. Requiring a move above +100 for a bullish signal and a move below -100 for a bearish signal will reduce whipsaws but result in slower entries and exits. Many traders consider this to be a small price to pay for a higher probability of being on the right side of a trade. There is much more to the CCI than this. The CCI is a powerful analytical tool. For a much more thorough discussion of the CCI (trading with it, signals, and interpretations), see Tutorial 13. Back to charts
McClellan Oscillator & Summation Index
The McClellan Oscillator is a breadth-of-market indicator that is effective for interpreting short-to-intermediate-term market moves. The McClellan Summation Index 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. The readings posted depend on the precise time the readings were taken. For example, after the market officially closes, stock prices may continue changing by small amounts for a short time as computer systems catch up with closing activity. Readings at the official closing time may be slightly different from those 15 minutes after the close. Thus, different sources may report slightly different readings.
McClellan Oscillator readings of ±150 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.
The Summation Index is a relative number, depending on the day when the count begins. Therefore, on one day it might read 10,000 and the next day it might read 9,000 even though the chart shows the Index rising. In this case, the apparent discrepancy would simply be the result of the summation starting on a later day for the chart selected. You can get a better sense of what is going on by simply looking at the chart. Ask yourself questions like the following. Is the Summation Index rising or falling? Are the postings far apart or close together? For example, 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.
The above charts may take on a different appearance at times. That's because we use several sources, and when one is late in getting the data out we may switch to another source. Some charts have the numbers 19 and 39 at the top. Those are simply the exponential moving averages used in the computations, and should be ignored. Back to charts
Chaikin Relative Volatility and CBOE Volatility Index (VIX)
We lack the data to update Chaikin Volatility. The VIX is at 14.26 (Friday's Close). The charts are not updated.
The Chaikin Volatility Indicator is shown above on the left. It is based on the S&P100. This indicator 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 increased 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. Chaikin 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 VIX (shown above on the right) is a measurement of "implied risk" and differs from the other measurement 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). 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.
We Test Common Assumptions Of Market Participants
pppWe test assumptions commonly made by market "gurus" to see if they are valid. On the Q & A page ( item 14 )) , 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/investors, prefer exponential moving averages over simple moving averages. It is part of the "popular wisdom" of the market that exponential averages are better than simple averages because of the greater sensitivity of exponential moving averages to the most recent price behavior. However, few have really conducted more than superficial tests of the assumption that exponential is better than simple. 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 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 actually given, and that often results in fewer whipsaws or false signals. Please do not get the wrong impression. Generally, the differences were not major, and sometimes exponential averages worked better. However, we were trying to determine which worked best most of the time on most stocks in most types of market environment. Our general observation is that 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. For more on the nature of our testing procedures, see our report on selling strategies (a link at the end of the report leads to a report on the Merrill Lynch study). Sell Strategy See also Item #11 at Q & A
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