TECHNICAL INDICATORS tome Line: In...

TECHNICAL INDICATORS tome Line: Indicates changes in the amount of coin coming into, or leaving, an equity market (or a stock). riches coming in is bullish because it personates accumulation of stockspresumably by informed people; currency leaving is bearish because it personates informed reductions of positions in stocks.

Relative might 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 induces above 70% and over-sold (time to buy) when the RSI incites below 30% (see May/June 1993 article). The whirl Line and the RSI are best used together to provide bribe and Sell signals. The RSI should always be viewed as subordinate to the bulk Line.

Moving Average: sleeks out weekly fluctuations and provides a relation point for comparison purposes with the now passing level of the Index or the bulk 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 instigates above 58%; oversold when the Ratio small quantitys below 42 %. Buy Signals

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

A major advance can be rely uponed when both the Volume Line and RSI fail to confirm a novel 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 rely uponed when an index reaches a novel low level but the A-D Ratio does not. vend Signals When an index (or stock) reaches a novel high level (price) without the mass Line also making a unique recent high (i.e. failing to confirm the fresh high level) and the RSI is over-bought (i.e. above 70%)

A major market decline can be count uponed when both the Volume Line and RSI fail to confirm a fresh 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 look fored when an index reaches a of recent origin high price but the A-D Ratio does not. onward Monday July 15, we witnessed a big globule in the stock markets with the TSE 300 losing 86 points; the Dow Industrials 161 points; and, the NASDAQ 43 points. The TSE 300 and 35 came down to their 30-week moving averages and the Dow, of the present day York Composite Index and Nasdaq as well-as; not only-but also; not only-but; not alone-but broke below theirs. Pretty scary stuff!

So is that it?...the cessation of the greatest bull market in history?

I don't think for a like reason and here's why. Believe it or not, flat with the averages dropping like a stone, the dimensions Lines of the TSE 35 the Dow, NYSE and Nasdaq all made fresh all-time weekly highs!

But for what reason is that possible? Well, in calculating the compass Line, the important thing is where the market ends relative to its high and soft If it closes nearer its high, then the contortion Line goes up (and vice versa). bulk Line Daily Total: [(Close minus High)plus (Close minus Low)] times bulk

For example, the Dow high for the week extremityed July 19 was 5528, the cheap 5170, and the close 5427 Therefore, the average clos 101 points from its high and 257 points from its depressed So, it closed nearer to its high than its reasonable which caused the Volume Line to rise and, in this case, enough to make a strange all-time high.

[(5427 - 5528) + (5427 - 5170)] = -101 + 257 =

+156 (the addition to the cumulative total of the daily totals)

Imagine the tremendous amount of buying power that must have set ined the market to drive it up 257 points from its depressed That is not bear market action!

At a major top, we should descry several conditions fulfilled: (1) a majority of the book Lines of the averages should give vend signals; (2) the Volume Lines should lead the averages down; (3) the NYSE Advance-Decline should top abroad before the average; (4) the yield inflect should be inverted, i.e., short-term interest rates should be higher than longterm rates; and, (5) bullish sentiment should be excessive for brace more weeks. Now, all that is not carved in stone further we should see, at least, about of those conditions met. for a like reason far, none of them has been.

Furthermore, the percent of stocks with weak mass Lines should exceed the percent with hale ones. Currently, in Toronto, 63% of the stocks I go in the rear [i]or[/i] in the wake of are strong and 37% weak. In novel York, 72% are strong and 28% weak. And those numbers are improving as the market prevail upons lower.

And finally, while the stock was falling, the bondages were rallying and appear to be in virtuous condition, at least for the nearest few months.

So, I don't think it's time to hie for cover yet. At the significance the best places to invest are in the interest-sensitive stocks (banks and utilities) and the consumer-staple stocks (cosmetics, mix with drugss foods, etc.).

Copyright Canadian Shareowner Magazine Inc. Sep/Oct 1996

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