MARKETS & STOCKS Volume Line: Indic...

MARKETS & STOCKS

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

Relative potency Index ("RSI"): Indicates the relative size of the "up" and "down" act upons 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 instigates above 70% and over-sold (time to buy) when the RSI rouses below 30% (see May/June 1993 article).

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

BUY SIGNAL

When a market (or stock) reaches a just discovered low price without the dimensions Line also making a of the present day low (i.e. confirming the fresh low price) and the RSI is below 30%

SELL SIGNAL

When an index (or stock) reaches a fresh high price without the compass Line also making a of the present day high (i.e. confirming the recent 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 propels above 58%; over-sold when the Ratio globules below 42% (see September/October 1993 article).

BUY SIGNAL

A rally can be awaited when a market reaches a just discovered low prices but the A-D Ratio does not. Furthermore, a major advance can be rely uponed if both the Volume Line and RSI are also not making of the present day lows.

SELL SIGNAL

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

0n January 21, 1994 the TSE 300 Index clos at an all-time weekly high of 4502 This high was confirmed on the TSE's Volume Line also reaching a novel high for the week. This co-operation of highs in both the Index and its mass Line meant that, in the coming events the Index should surpass 4502 At the same time, the Advance-Decline Ratio made a high of 596% in overbought territory.

A review of the accompanying charts exhibit tos that the Volume Line's globule from the January peak was the first time that it had declined more than the Index since, the last 'low' in October 1992 The globule for the TSE 35 Index was unruffled more pronounced. TSE 35 Index contains barely the largest capitalized stocks which are also included in the TSE 300 The price behaviour of these 35 stocks basically sways the movement of the TSE 300 Index. of the like kind declines are warnings to watch for a take a bribe for signal at the next high in the TSE 300 Index. A barter signal is indicated when a strange high in the Index is not confirmed by dint of the Volume Line also experiencing a recent high.

On March 18, the TSE 300 made another all-time weekly high at 4567 and in like manner did the TSE 35 at 2308 This time, the contortion Lines did not confirm the novel highs; nor did the A-D Ratio which was barely able to reach a plain of 51.0%.

Going into the Easter weekend the market is approaching oversold territory and there is a useful possibility of a technical rally. However, it is excessively doubtful that the Toronto indexes will gain back to the new highs because too a great deal damage has been done to the contortion Lines.

Aggressive buying should not, in my view, be done again until the situation oversets itself; that is, until the Indexes make depresseds which are not confirmed from the Volume Lines. Since the convolution Lines have just given betray signals, unconfirmed lows by the indexes are not likely to happen in the near hereafter In the meantime, rallies should be used to restore stock positions and raise cash.

Interestingly, as of March 18th the book Lines for the New York averages have not given exchange signals.

Patrick Taylor is a director and technical analyst with the investment dealer Brawley Cathers Limited.

Copyright Canadian Shareowner Magazine Inc. May/Jun 1994

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