Stock Disciplines Signals Scanners & Stops
Daily Chart of The Dow Jones Industrial Average
Wednesday (a.m.) U.S. stock-index futures this morning inched lower before the market's open, on Middle East politics uncertainties and tariff tensions. This suggests that the market will open with a negative bias. [it opened down about 35 points, declined to 27,017.85, then began a recovery from there] ~ The policy decision announcement by the Fed is scheduled for 2 p.m. Eastern Wednesday. The central bank is expected to reduce rates by a quarter of a percentage point and share its future monetary-policy plans to adjust for the negative effects of a China-American trade war and a flagging world economy. Jerome Powell is to host a news conference a half-hour after the decision is released. ~ Israel’s election was too close to call on Wednesday. With more than 63% of votes counted, Netanyahu (right-wing) is virtually tied with Gantz (center-left).
Tuesday (after close), September 17Oil futures dropped almost 6% Tuesday after Saudi Arabia’s energy minister said the kingdom’s crude production could fully recover by the end of the month (Monday's surge was nearly 15%). Saudi Arabia’s energy minister Prince Abdulaziz bin Salman on Tuesday said that Saudi Aramco has already restored 50% of lost production. According to a Wall Street Journal report, that facility is already meeting customer needs at pre-attack levels. ~ The United States believes the attacks involved both cruise missiles and drones, and that they originated in southwestern Iran. Iran denies involvement. Iran’s allies in Yemen’s civil war claimed responsibility for the attacks. Saudi Arabia's investigation indicates the attacks did not come from Yemen, the Saudi foreign ministry said. ~ Iranian Supreme Leader Ayatollah Ali Khamenei on Tuesday refused to have talks with the United States unless the Trump administration returns to the nuclear accord that the United States abandoned last year “Iranian officials, at any level, will never talk to American officials ... this is part of their policy to put pressure on Iran.” Trump on Tuesday said he is not planning to meet Iranian President Hassan Rouhani during a U.N. event in New York this month. The Dow rose on slightly more volume than was associated with yesterday's decline. However, volume was still less than average. We see Dow support at about 26,952. While the current Impulse Force is negative, it is not likely to result in a significant decline. Given that the market is expecting a rate cut, and given the nearby support, it is more likely that the Dow will rise tomorrow, barring a negative news event. Bear in mind that members of the Fed are divided in opinion over policy going forward. If the Fed announcement tomorrow stresses the notion that a 25 basis point cut is all that can be expected, that would be a negative news event, and investors will probably react negatively. In that case, support at 26,952 may not be sufficient for the Dow to hold altitude. Please see our "Earnings Due" page, where we have listed 19 companies scheduled to report earnings on Wednesday. For an indication of the probable close on Wednesday, see the Key Intraday Level data below. Today's closing positions of the 5-day, 10-day, 20-day, and 50-day moving averages, which can act as support if below the closing price (or resistance if above the closing price), are given below the "Stage 4" report for the Dow, S&P 500, and Nasdaq Composite Index. The longer the moving average, the greater the strength of support or resistance.
The three major stock benchmarks all closed higher on Tuesday as angst over the weekend attacks on Saudi Arabia’s biggest oil refinery ebbed and investors shifted their attention to a widely expected interest rate cut tomorrow. The S&P energy index lost 1.5% after its strong surge on Monday. Consumer staples, utilities, and real estate posted some of the biggest gains among the 11 major S&P sectors. The Fed will conclude its two-day policy meeting on Wednesday, when it is expected to lower interest rates by a quarter percentage point. Investors will be looking for clues on policy, how far the easing will go. Advancing issues outnumbered declining ones on the NYSE by a 1.17-to-1 ratio; on the Nasdaq, the ratio was 1.18-to-1. The S&P 500 logged 17 new 52-week highs and 1 new low; the Nasdaq Composite logged 57 new highs and 29 new lows. Volume on U.S. exchanges was 6.8 billion shares, about average over the last 20 trading days.
The following stocks were among the biggest gainers (the change in volume indicated for each is relative to the previous day's volume): Msci (MSCI.K) gained 10.15 points or 4.4% with a volume increase of 43.65%. Sealed Air (SEE) gained 1.67 points or 4.1% with a volume decline of -11.48%. Ball (BLL) gained 2.80 points or 3.9% with a volume increase of 53.82%. Cme Group Cl A (CME.O) gained 7.73 points or 3.7% with a volume increase of 100.62%. Ulta Beauty (ULTA.O) gained 8.40 points or 3.7% with a volume increase of 61.68%. Nasdaq (NDAQ.O) gained 3.45 points or 3.5% with a volume increase of 74.55%. Crown Castle International Reit (CCI) gained 4.52 points or 3.3% with a volume increase of 21.91%. Chipotle Mexican Grill (CMG) gained 25.88 points or 3.2% with a volume decline of -7.48%. Hershey Foods (HSY) gained 4.65 points or 3.1% with a volume increase of 29.03%. American Airlines Group (AAL.O) gained 0.87 points or 3.1% with a volume decline of -18.21%.
The following stocks were among the losers: Devon Energy lost -1.44 points or -5.1% with a volume decline of -28.52%. Eog Resources lost -4.42 points or -5.2% with a volume decline of -58.70%. Cimarex Energy lost -2.93 points or -5.4% with a volume decline of -43.34%. Occidental Petroleum lost -2.65 points or -5.5% with a volume decline of -35.93%. Corning lost -1.82 points or -6.1% with a volume increase of 892.66%. Halliburton lost -1.46 points or -6.5% with a volume decline of -46.61%. Helmerich And Payne lost -3.34 points or -7.0% with a volume decline of -26.37%. Marathon Oil lost -1.10 points or -7.8% with a volume decline of -31.96%. Apache lost -2.43 points or -8.5% with a volume decline of -44.94%. Nordstrom lost -3.47 points or -9.8% with a volume increase of 145.48%.
Updated after close on 09/17/2019 -- The Key Bullish Intraday Level to watch is 27,144. The Key Bearish Intraday Level to monitor is 27,077. 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 next market close.
4-Stage Dow Configuration/Signal Report:
Stage 1: The Dow's very short-term configuration has turned positive.
Stage 2: The positive tone in Stage 1 has strengthened, setting the stage for a possible Buy signal.
Stage 3: Stage 3 calculations have not yet generated a Buy or Sell signal.
Stage 4: The last signal generated was an intermediate-term Buy signal.
The Dow closed at 27110.8008, for a change of 0.1255%. Pivot Point Support S3 = 26,899.63. Pivot Point Resistance R3 = 27,279.74. See the explanation of pivot points lower on this page for more on S3 and R3. The pivot resistances and supports R1, R2, S1, and S2 are given in the pivot table below. The 5-day moving average closed at 27,186. The 10-day moving average closed at 27,035. The 20-day moving average closed at 26,549. The 50-day moving average closed at 26,616.
The Dow closed at 27,110.80. This was a change of +0.13%. Relative to the previous close, the change in volume for the Dow was --2.07%. Volume was 17.88% less than the 50-day moving average of the volume. The 20-day Chande Momentum Oscillator (CMO) went from 30.68 to 26.59. An extreme value for this metric is ±50 (+50 would indicate an overbought condition and -50 would indicate an oversold condition). The stochastic oscillator went from 91.41 to 89.76. Technicians consider readings of 80 or more to be indicative of an overbought condition and readings of 20 or less to be indicative of an oversold condition. The 14-day CCI went from 78.80 to 68.22. Probabilities call for an early morning advance tomorrow, barring negative news events. For information on PAL's probability estimates, click on the blue "PAL" link.
PAL. CCI readings and what they mean
See Discussion of "Key Intraday Levels" & Pivot Levels
S&P500 Index and Nasdaq Composite Index
Blue line (5-day) crossing above red line (20-day) = "Buy" Blue crossing below red line = "Sell"
Nasdaq Composite Index
Stage 1: The Nasdaq Composite's very short-term configuration has turned positive.
Stage 2: The positive tone in Stage 1 has strengthened, setting the stage for a possible Buy signal.
Stage 3: Stage 3 calculations have not yet generated a Buy or Sell signal.
Stage 4: The last signal generated was an intermediate-term Sell signal.
The Nasdaq Composite closed at 8186.02, for a change of 0.3983%. S3 = 8,106.07. R3 = 8,251.30. The 5-day moving average closed at 8,196. The 10-day moving average closed at 8,156. The 20-day moving average closed at 8,025. The 50-day moving average closed at 8,063.
The Key Bullish Intraday Level to watch is 8,198. If the Nasdaq Composite Index can stay above that level for more than 30 minutes of the first hour of trading, it will have an 80% probability of closing higher for the day. The key bearish intraday level to watch is 8,174. If the Nasdaq Composite stays below that level for more than 30 minutes of the first hour of trading, it will have an 80% probability of closing lower for the day. These probabilities assume there are no news events that modify investor sentiment between now and next market close.
The Nasdaq Composite Index closed at 8,186.02. This was a change of +0.40%. Relative to the previous close, the change in volume for the Nasdaq Composite was -2.60%. Volume was -11.26% less than the 50-day moving average of the volume. The 20-day Chande Momentum Oscillator (CMO) went from 19.78 to 14.92. An extreme value for this metric is ±50 (+50 would indicate an overbought condition and -50 would indicate an oversold condition). The stochastic oscillator went from 85.91 to 84.97. Technicians consider readings of 80 or more to be indicative of an overbought condition and readings of 20 or less to be indicative of an oversold condition. The 14-day CCI went from 68.61 to 76.78. See CCI meanings
Updated after close on Tuesday, 9/17/19 -- The total number of issues traded on the NYSE was 3051. Of those, 1561 advanced, or 51.16% of the total. That is a change of -1.89%. There were 1388 issues that declined, or 45.49% of the total, a change of 3.27%. The total volume of shares traded on the NYSE declined by 8.72%.
S&P 500 Data
Group Pressure Gradient
The market has an effect on shares analogous to the effect of air currents on an airplane. The greater the speed of the wind, the more difficult it is for a plane heading into the wind to make headway. However, a plane moving in the direction of the wind will find it much easier it to make headway and to gain speed. An airplane has its own driving force, but the plane's environment exerts its external force on the plane. Likewise, shares have their own motion based on supply/demand considerations pertaining to those shares, but the environment in which the shares exist exerts forces on the shares that are unrelated to the merits of specific shares within that environment. We refer to this "force" as the Group Pressure Gradient, and we sometimes refer to it as the "Force of Trend." A Group Pressure Gradient (or Force of Trend) reading near zero might be compared to flying on a windless or near windless day, and a reading of 28 might be compared to flying with a gentle to moderate tail wind. To continue the analogy, a reading of 28 to 57 might be compared to flying with a moderate to strong tail wind, while a reading of 57 to 85 would be like flying with strong winds to gale level tail winds. Negative readings would reverse the above comparisons. Of course the analogy is not perfect because a pilot would not want to fly in gale winds, but we certainly would not mind investing in shares when the market is registering 57 to100 on the pressure gradient scale. The scale ranges from -100 to +100. The Group Pressure Gradient has both magnitude and direction. Hence, it is a vector.
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. The price of a security or Index will remain between pivot support 3 (S3) and pivot resistance 3 (R3) 80% - 85% of the time. Therefore, many traders will wait for a move toward either R3 or S3 to show signs of stalling. When the stalling is evident, they will buy a stock that has been declining toward S3 or sell a stock that has been rising toward R3. In the above discussions of the Dow, S&P 500, and Nasdaq Composite Index, see "4-Stage Indicator and Signals" for R3 and S3.
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, one of our traders has given permission for us to share her performance on a one-time basis.
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.
S&P 100 and Dow Stocks
The S&P 100 is a subset of the S&P 500. It includes 100 companies that have exchange-listed options. The stocks that make up the S&P 100 represent more than 50% of the market capitalization of the U.S. equity markets (as of January 2017). The S&P 100 contains all the stocks in the Dow, with the exception of The Travelers. In order to include all stocks in the S&P 100 and all stocks in the Dow, we have added The Travelers, making the total count 101 stocks. The stocks in this list are ranked in the order of their 12-day momentum. The "12-day %" column is the 12-day momentum expressed as a percent. A review of the list might suggest where the pockets of strength are in the market. The data we need to compute the 12-day momentum is sometimes slow in coming. If we wait for the data, our update for the entire site may be delayed up to an hour. Therefore, we post what we can get when we request the data. If it is getting late and the data still has not come in, you will see a blank space in the "12-day %" column. This could also happen if the stock has not been trading for at least 12 days. Stocks with a blank space for this column will appear at the top of the list, even if they really rank much lower. Manually entering the data for all these stocks would be too time-consuming.
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
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.
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.
McClellan Oscillator & Summation Index
Quotes For Gold & Silver
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.
We Test Common Assumptions Of Market Participants
We 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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