Volume Line: Indicates changes in t...

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

Relative puissance 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 propels above 70% and over-sold (time to buy) when the RSI rouses below 30% (see May/June 1993 article). The body Line and the RSI are best used together to provide purchase and Sell signals. The RSI should always be viewed as subordinate to the book Line.

Moving Average: Smooths not at home weekly fluctuations and provides a allusion point for comparison purposes with the generally received level of the Index or the book 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 actuates above S8%; oversold when the Ratio globules below 42%.

Buy Signals

When an index (or stock) reaches a recent low level (price) without the dimensions Line also making a unique recent low (i.e. failing to confirm the modern low level) and the RSI is over-sold (i.e. below 30%)

A major advance can be reckon uponed when both the Volume Line and RSI fail to confirm a of recent origin 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 tome Line is below its moving average and the RSI is over-sold

A market rally can be anticipateed when an index reaches a of the present day low level but the A-D Ratio does not.

Sell Signals

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

A major market decline can be reckon uponed when both the Volume Line and RSI fail to confirm a modern 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 dimensions Line is above its moving average and the RSI is over-bought

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

The all-time weekly high for the TSE 300 occurr in the week ending July 14 1995 At that point, the TSE had travelled almost twice as far ABOVE its 30-week moving average as the body Line, clearly demonstrating that the buying power was waning and that a correction was likely to take place. Coincidentally, the RSI was also self-same overbought at 87%.

A CORRECTION

A sell-off ensu with the TSE finally bottoming in the week ending October 27 at 4335 At that point, the TSE had dropp 144 points below its 30 week moving average, clearly demonstrating that the selling squeezing had dried up. Coincidentally, the RSI had slipped well into over-sold territory to 22%

In addition, the 5-week A-D Ratio dropp to a self-same oversold 35.1%, almost to the same even it reached at the December 1994 gentle which was 33.7%.

Another gauge I use is the percent of stocks below their 10- and 30-week moving averages. At the October 27 cheap those numbers were 10.8% and 229% respectively (under 30% is oversold) al mostly identical to those at the December 1994 low

So in view of the evidence, it was a excellent safe bet that the market had reached an important bottom.

A RALLY

The rally that followed was, to say the least, powerful with the TSE vaulting 200 points in individual week. The Volume Line also made an all-time high, well on the outside in front of the average. The 5-week A-D Ratio bound backed back to 41.5%, just below the top of the over-sold window (42%) And the percent of stocks above their 10- and 30-week moving averages christianityed back over the 30% horizontal to 37.6 and 39.8%, thus confirming the legitimacy of the rally.

The fact that the bulk Line has made a strange all-time high means that the TSE will master there, probably in the not-too-distant hereafter despite all the hoopla about Quebec, the deficit, and the debt

In recent York, as this is written, all the major averages are enjoying recently made known all-time highs in their tome Lines and are leading the averages up while the sentiment indicates that the market is continuing to 'climb a wall of worry."

THE OUTLOOK

At this point, I don't diocese any major problems in either market.

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

Copyright Canadian Shareowner Magazine Inc. Jan/Feb 1996

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