TECHNICAL INDICATORS Volume Line: ...

TECHNICAL INDICATORS

Volume Line: Indicates changes in the amount of coin coming into, or leaving, an equity market (or a stock). coin coming in is bullish because it delineates accumulation of stocks-presumably by informed people; circulating medium leaving is bearish because it depicts informed reductions of positions in stocks.

Relative hardness Index ("RSI"): Indicates the impetus of a market (or stock) during the last 14 weeks. A market (or stock) is considered overbought (time to sell) when its RSI incites above 70% and over-sold (time to buy) when the RSI stirs below 30% (see May/June 1993 article). The convolution Line and the RSI are best used together to provide bribe and Sell signals. The RSI should always be viewed as subordinate to the tome Line.

Moving Average: planes out weekly fluctuations and provides a regard point for comparison purposes with the generally received level of the Index or the body Line. Calculated as the average of the last 30 weekly closing prices.

Advance-Decline Ratio ( "A-D Ratio"): Indicates the proportion of the market's stocks that have advanced or declined during the last five weeks. A market is considered over-bought when the A-D Ratio incites above 58%; oversold when the Ratio very littles below 42%. Buy Signals

When an index (or stock) reaches a of recent origin low level (price) without the body Line also making a unique of the present day low (i.e. failing to study firm the new low level) and the RSI is over-sold (i.e. below 30%)

A major advance can be awaited when both the Volume Line and RSI fail to confirm a recent low for an index (or stock).

When the distance that the index (or price) has mov below its moving average is greater than the distance that the book Line is below its moving average and the RSI is over-sold

A market rally can be awaited when an index reaches a modern low level but the A-D Ratio does not.

Sell Signals

When an index (or stock) reaches a modern high level (price) without the whirl Line also making a unique of the present day high (i.e. failing to confirm the just discovered high level) and the RSI is over-bought (i.e. above 70%)

A major market decline can be look fored when both the Volume Line and RSI fail to confirm a just discovered high for an index.

When the distance that the index (or price) has mov above its moving average is greater than the distance that the body Line is above its moving average and the RSI is over-bought

A market sell-off can be reckon uponed when an index reaches a novel high price but the A-D Ratio does not.

A just discovered all-time high was achieved by way of the TSE 300 and 35 for the week ending January 12 1996 one as well as the other highs were confirmed by their compass Lines.

The five-week A-D Ratio advanced to SS.1%-still in subordination to the over-bought level of 58% Last week it backed along to 53.4%.

The percentage of stocks above their 30-week moving averages rose to 59.5%-well subordinate to the over-bought level of 70% Last week it backed along to 52.2%.

The evidence clearly point outs that the market is moving up in an orderly manner and should continue to travel higher. This is confirmed at the fact that the commodities have not begun sustainable rallies notwithstanding Therefore, there is no reason to look forward to a new surge of inflation which would undoubtedly consequence in a rise in interest rates and major disorder for both the stock and ligature markets.

A WORD ABOUT THE COMMODITIES

Although gold and silver have rallied through the past couple of weeks, their turn Lines are, to say the least, pathetic and are moving in the opposite direction to the prices. one as well as the other metals are also running into major resistance. All this does not foreshow well for gold stocks.

Crude Oil and Natural Gas also rallied in conjunction with gold on the contrary ran into major resistance sum of two units weeks ago and turned down sharply last week. That was not surprising since the couple Volume Lines were lagging badly behind the prices. All this does not foretell well for oil and gas stocks.

Lumber is trying to rally. Last June the RSI went all the way down to 14% which was extremely over-sold Unfortunately, the tome Line has not given a bribe signal, so a rally has to be suspect. The paper and forest production stocks are down at the bottom of the heap in sympathy. While they are over-sold they have not still shown much ability to rally.

SO WHAT'S GOING TO hold THIS MARKET GOING?

Well, small change is still declining from its top back in January 1995 I believe it is choke to a turnaround because the body Line is not confirming the decline and the RSI is in over-sold territory. Metal stocks are also over-sold cent is a good gauge for the metals and when it bends back up, the metals should rally.

Banks and utilities are the other sum of two units major areas which are powerful Although they are somewhat over-bought that condition would be relieved to a certain number of extent in the current market pullback. These areas are unlikely to endure much unless interest rates rise.

PATRICK TAYLOR IS A DIRECTOR AND TECHNICAL ANALYST WITH THE INVESTMENT DEALER BRAWLEY CATHERS LIMITED

Copyright Canadian Shareowner Magazine Inc. Mar/Apr 1996

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