Wednesday, June 27, 2007

Pivot Volume Indicator

"Winners, I am convinced, imagine their dreams first. They want it with all their heart and expect it to come true. There is, I believe, no other way to live."

Joe Montana


The last post covered a very basic formula for scanning for triangle patterns. Another benefit to experimenting and creating formulas is that it is possible to create a visual representation of an idea. The above chart is of the S&P 500 Index. In the top pane is an idea for an indicator that takes into account the range in prices for the day along with incorporating volume into the mix. It uses the idea that if the pivot((H+L+C)/3)is greater than the midpoint((H+L)/2) then that day is a positive volume day. If the pivot is less that the midpoint, then its a negative volume day. This formula is then smoothed by using a moving average, and then plotted as a histogram(red). The blue line is a moving average of our created indicator. If our indicator is above its moving average or the zero line, we could consider than bullish. If it is crossing down through the zero line or below its moving average it could be seen as bearish.

This indicator is not necessarily a trigger to go long or to go short. It is an indication of the underlying strength of a particular trend. It is important not to read into any indicator to deeply and expect it to do things it is not made to do.

This is the corresponding chart of the NDX. It again, like the S&P 500, shows that as the market has tried to climb higher the momentum isn't there like it was in the rally off of the March lows.

Below are a few charts showing the new indicator.

Baker Hughes - BHI

Holly Corp - HOC

Juniper Networks - JNPR

Kennametal Inc. - KMT


BHI - Baker Hughes Incorporated (Baker Hughes) is engaged in the oilfield services industry. The Company is a supplier of products and technology services and systems to the worldwide oil and natural gas industry, including products and services for drilling, formation evaluation, completion and production of oil and natural gas wells.

HOC - Holly Corporation is an independent petroleum refiner, which produces value light products, such as gasoline, diesel fuel and jet fuel. The Company owned and operated two refineries consisting of a petroleum refinery in Artesia, New Mexico that is operated in conjunction with crude oil distillation and vacuum distillation and other facilities (Navajo Refinery), and refineries in Woods Cross, Utah (Wood Cross Refinery).

JNPR - Juniper Networks, Inc. designs and sells products and services that together provide its customers with Internet protocol (IP) network solutions.The Company’s operations are organized into three operating segments: Infrastructure, SLT and Service.

KMT - Kennametal Inc. (Kennametal) is a global supplier of tooling, engineered components and advanced materials consumed in production processes. It provides metal cutting tools and tooling systems. Kennametal specializes in developing and manufacturing metalworking tools and wear-resistant parts using a specialized type of powder metallurgy. It also manufactures and markets a line of tool holders, tool holding systems and rotary cutting tools by machining and fabricating steel bars and other metal alloys.

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