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). circulating medium coming in is bullish because it shows accumulation of stocks-presumably by informed people; currency leaving is bearish because it exhibits informed reductions of positions in stocks.

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

Moving Average: Smooths revealed weekly fluctuations and provides a respect point for comparison purposes with the circulating level of the Index or the convolution 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 rouses above 58%; oversold when the Ratio ear-rings below 42%.

Buy Signals

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

A major advance can be look fored when both the Volume Line and RSI fail to confirm a just discovered 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 convolution Line is below its moving average and the RSI is over-sold

A market rally can be look forward toed when an index reaches a strange low level but the A-D Ratio does not.

Sell Signals

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

A major market decline can be count uponed when both the Volume Line and RSI fail to confirm a strange 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 wait fored when an index reaches a strange high price but the A-D Ratio does not.

As this is written (third week of March 1996) I do not papal court any major problems with the stock market in isolation.

Historically, the London stock market (FTSE 100) tops without ahead of New York (NYSE) and, many times times, so does the Japanese market (Nikkei Dow). If the same was to place price charts of the sum of two units overseas markets under that of of the present day York, one would see that, in fact, they appear to have topped out

The body Lines, however, say otherwise. The FTSE 100 did not give a take a bribe for signal at the previous peak in February. The average has just about declined to its 30-week moving average where it should find support and rally back to a modern high. The Nikkei's Volume Line made a modern reaction high last week, in the same manner the fact that the average has stammering down through its 10-week moving average is simply a pullback and it should heal shortly to a new reaction high.

The NYSE's convolution Line has not given a barter signal and neither has the Nasdaq's. united would expect to see moot points develop in the (latter) speculative market before it hits the mopish chips. So far, there is no sign of trouble

And as you can behold on the accompanying charts, there is no put up to sale signal in the TSE 300 There is also no vend signal in the TSE 35 which is where the first signs of fret are likely to manifest themselves, continually before they do in of recent origin York. The reason for this, at least in my view, is that when portfolio managers procure nervous and want to raise cash, they will await to the most liquid (heavily traded) stocks because the) are the easiest to vend in a very illiquid market.

I said above that I did not view an) problems with the stock market in isolation. The reality is that the stock market does not go on on its merry way oblivious to everything besides most especially the bond market which leads the stock market at bottoms and tops.

Sell signals have been given in succession both the weekly and monthly charts of the U Treasury connection futures. The bonds have already declined more than ten points from their peak in January.

The stock market will tread in the steps of the bond market eventually however that may not happen for several month thus you need not rush without and sell all your stocks immediately because there are no vend signals yet. But the warning flag is up in this way unless the U.S. Federal reservation Board cuts interest rates dramatically in the near events to come a major recovery in the constraints is unlikely and a dark vast number will accordingly remain over the stock market.

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

Copyright Canadian Shareowner Magazine Inc. May/Jun 1996

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