Identifying Probable Market Direction

Transcription

1 Identifying Probable Market Direction

2 Indicators for Market Direction Reversal Indicators The following are great for determining market turns on an index: 1. MACD-Hist(12,26,9) 2. RSI(7) 3. EWI(7,3,5) NEW!* * Early Warning (a.k.a. Early Turn) Indicator

3 Confirming Patterns

4 Patterns that Confirm Direction Look for the following Major Patterns on an index ETF Symbol (SPY, QQQ, DIA) at any potential change in trend: Short Term Trend Line Breaks Volume Climaxes Consolidation Breaks Support/Resistance Gaps Longer Term

5 Market Breadth Indicators

6 Market Breadth indicators Market Breadth* is the Analysis of market data (volatility, advances, etc.) as opposed to an index symbol. Indexes are weighted by symbol. Behavior of the individual stocks gives us a better idea of true market sentiment and insight into trend direction and strength. MB indicators can be based on the entire market or specific indexes, like the NYSE, AMEX and NASDAQ. * Also referred to as Broad Market indicators

7 Market Breadth Indicator (Symbol) List

8 The Best 4 MBIs Indicator Symbol Short Term Medium Term Long Term Advance Decline Line McLellan Oscillator ARMS Index (TRIN) $AD.N Trend Breaks Divergence Divergence $MO.N $AR.N Divergence Zero-Line Crossover Overbought/ Oversold Divergence Zero-Line Crossover Overbought/ Oversold Overbought/ Oversold VIX Index $VIX High=Fear Low=Trend High=Fear Low=Trend High=Fear Low=Trend These indicators can be used to detect likely market direction in the Short, Medium, and Long Term. For today s webinar, we will focus on Short Term.

9 The Advance Decline Line The AD Line is formed by looking at the number of stocks that posted gains (advancers) vs. the number of stocks that have posted losses (decliners). The net difference is added or subtracted to/from the prior total each day.

10 Advance Decline Divergence Another Example of Advance Decline Divergence Here we can see the NYSE Advance Decline Line diverged from the index in the 4 th quarter of 2007, predicting the ensuing bear market.

11 A More Recent Example 4 th Quarter 2018 The Divergence on the Advance- Decline line was very clear in the 4 th quarter of 2018.

12 The McClellan Oscillator The McClellan Oscillator is calculated by subtracting a 39 day EMA (of advancing issues - declining issues) from a 19 day EMA (of advancing issues - declining issues). Divergence provides a Key Signal on this Oscillator. MCO is typically used to predict short and medium term moves.

13 MCO Zero Line Crossover The Zero Line crossover helps us predict short term moves as well. This example shows the S&P 500 in late 2007, and almost every time that the MCO crossed the zero line, the index followed in that direction the next day.

14 MCO Quick Move Another way to use the zero line is to look for a quick move through each side of it. When we see this, we should look for a move in the original direction.

15 McClellan Summation Index The McClellan Summation Index (MSI) is a cumulative sum of the MCO values and it is used for a longer term view of market breadth. The indicator s directional movement can be used to tell whether money is moving in or out of the market.

16 MSI Overbought/Oversold The McClellan Summation Index (MSI) can be used for overbought and oversold analysis. The +/ level works well in most markets. This example shows how these levels helped indicate trend reversals in 2005.

17 ARMS Index Overbought/Oversold The Arms Index (also known as the TRIN) was developed by Richard Arms is another market breadth indicator that is based on advances, declines, and volume. Indicator peaks help anticipate trend reversals. Levels can also be used.

18 The Bullish Percent Index The Bullish Percent Index is calculated by dividing the number stocks with a Point and Figure buy signal by the number of stocks on that particular exchange. It is used to indicate overbought and oversold conditions, with a reading of 70% or greater considered overbought and a reading of 30% or less considered oversold.

19 Put/Call Ratio The Put Call Ratio is the volume ratio of the number of put options to the number of call options. The Put Call Ratio can forecast market tops and bottoms. The values that indicate the overbought and oversold levels vary. Below the.55 level for overbought and above the.75 level for oversold worked well in 2007.

20 The VIX Index The VIX Index is a weighted blend of prices for a range of options on the S&P 500 index. The goal of the VIX is to measure the implied volatility in market in the next 30 days. It is often referred to as the Fear Index as a high reading implies increased volatility.

21 The Current VIX An abnormally high VIX levels were seen in February. As VIX returned to normal a rally ensued. In Q4 VIX has remained at about 10 times normal trending levels, indicating the potential for further declines.

22 Using A.I. to assess Likely Market Direction

23 Using A.I. on Market Symbols We can: Run generic ARM Strategies on Market Symbols OR, Input the Market Breadth Indicators and train on those! Reversal Strategy Signals

24 Scanning for Market Direction Metrics

25 Using OmniScan for Consensus Count Up and Down Scans to determine market bullish/bearish sentiment.

26 Wrap-Up

27 Wrap-Up Market Direction can be determined using: Key Indicators on the index charts. Market Breadth Indicator Divergence & Levels OmniScans to count Strength vs. Weakness as a prelude to market action.

28 Downloads For all Users (on Open Resources): Indicator and System Definitions For OmniTrader Users ( ): Instructions The Strategy Used Confirming Indicator Color Charts OmniScans For Nirvana Club Members (Member Downloads) A.I. Powered Strategies ww2.thenirvanaclub.com/open-resources

29 Identifying Probable Market Direction