MARKETS & STOCKS Volume Line: Indic...

MARKETS & STOCKS

Volume Line: Indicates changes in the amount of currency coming into, or leaving, an equity market (or a stock). wealth coming in is bullish because it delineates accumulation of stocks -- presumably according to informed people; money leaving is bearish because it exhibits informed reductions of positions in stocks (see January/February 1993 article).

Relative impregnability Index ("RSI"): Indicates the relative size of the "up" and "down" incites of a market (or a stock) during the last 14 weeks. A market (or stock) is considered over-bought (time to sell) when its RSI act upons above 70% and over-sold (time to buy) when the RSI incites below 30% (see May/June 1993 article).

The turn Line and the RSI are best used together to provide bribe and Sell signals. The RSI should always be viewed as subordinate to the turn Line.

Buy Signal

When a market (or stock) reaches a strange low price without the convolution Line making a unique strange low (i.e. confirming the modern low price) and the RSI is below 30%

Sell Signal

When an index (or stock) reaches a fresh high price without the book Line also making a modern high (i.e. confirming the novel high price) and the RSI is above 70%

MARKET ONLY

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 induces above 58%; over-sold when the Ratio very littles below 42% (see September/October 1993 article).

Buy Signal

A rally can be anticipateed when a market reaches a of recent origin low price but the A-D Ratio does not. Furthermore, a major advance can be calculate uponed if both the Volume Line and RSI are also not making recently made known lows.

Sell Signal

A sell-off can be reckon uponed when a market reaches a fresh high price but the A-D Ratio does not. Furthermore, a major decline can be anticipateed if both the Volume Line and the RSI are also not making strange highs.

Previous articles have dealt with non-confirmations, by the agency of the Volume Line, of strange highs and lows in a stock's (or Index's) price to generate pervert with money [i]or[/i] gain and sell signals. In a great many cases, particularly with prize to individual stocks, such signals simply do not come about on a regular basis. It is therefore necessary to introduce another tool to attempt to combat this problem...the 30-week Moving Average (MA).

CALCULATING PRICE & bulk MAs

The MA for a stock's price is calculated by means of adding 30 weeks of closing prices and dividing the total by the agency of 30. To move the MA common week ahead, simply add the 31st closing price to the total, subtract the first finish and divide the new total by dint of 30. To move it ahead sum of two units weeks, add the 32nd end and subtract the second, and with equal reason on. Exactly the same measure is used to calculate an MA for a stock's bulk Line. The two moving averages are then plott forward the price and Volume Line charts. The MA undisturbeds out the weekly fluctuations and provides respect points for comparison purposes.

INTERPRETING THE MAs

Sell Signals

When the RSI for a stock propels up into the overbought belt (above 70%), the distance that the price has advanced above its MA is compared with the distance that the mass Line has moved above its MA.

If the price distance is greater, it indicates that the price is out-running the convolution Line and the stock should be sold It is always wise to wait to do for a like reason until the RSI rolls through the whole extent of (i.e. turns down). If the mass Line distance is greater, it indicates that the stock still has advantageous buying support and should be held for further appreciation.

Buy Signals

Conversely when the RSI persuades down into the oversold belt (below 30%), the two distances below the MA's are compared. If the price distance is greater, it indicates that the price has dropp too far relative to the whirl Line and the stock should be bought It is always wise to wait to do in such a manner until the RSI turns up If the turn Line distance is greater, it indicates that there is still selling squeezing on the stock and it should be avoided.

EXAMPLES

Individual Stocks

Some examples of stocks commonly exhibiting positive chart patterns onward the TSE are American Barrick, Cogeco John Labatt and Scott's Hospitality. Positive patterns upon the NYSE include Anadarko rock oil Bankamerica, Deluxe Corp and Kansas City Southern.

Indexes

What applies to stocks also applies to the market as a whole and vice versa.

The TSE 300's RSI was above the 70% line in March 1994 At that point, the Index was further above its MA than the compass Line (i.e. a sell signal) and a sharp decline did meet the eye In June, the RSI dropp below the 30% line with the Index further below its MA than the book Line (i.e. a buy signal). A rally ensu and, in September, the RSI again christendomed above the 70% line. At that point, the bulk Line was further above its MA than the Index (i.e. not a barter signal), so the correct pose was to stay invested. In December, the RSI dropp beneath the 30% line and the turn Line again held up better than the Index and provided another buying opportunity.

Similar signals were given in the U for the two the New York and Nasdaq Composite Indexes at the June 1994 cheaps Those signals remain in effect