Tuesday, July 3, 2007
Holiday Week Rally
With July 4th shortening the trading week and many people taking advantage of 3,4, or 5 day weekends, volume should be light this week. The above chart shows the S&P 500, with the advance decline moving average in the top pane and the short term pivot volume indicator in the middle pane. The index has held the 1500.43 area based on the opening range concept, a review can be seen here. Based on this concept the next target is 1524.10. Having a light volume week could make reaching that level relatively easy. The futures are currently up 4.50, so it could be a given that the target will be reached today. The next level after 1524.10 is 1547.77.
The Dow Jones Transportation Index has formed a short term triangle. It has started to make an attempt to break out of this pattern, but there is over head resistance and it feels like it could be a head fake. For the overall market to make new highs, this index will have to participate, and the way it looks right now that isn't the case.
The recent decline in interest rates could be ending as prices approach a key support level(yield).
This recent decline has let stocks regain some attention, but the fact is that rates have still made a strong move higher and more could still be in the works.
Pivot Volume Indicator
The last post touched on an idea for an indicator based on the pivot price of a stock in relation to its daily range and volume. If a stock's pivot,(H+L+C)/3, is greater than the mid-line,(H+L)/2, then that day is marked as a positive day. The value for the day is then combined with volume. To smooth things out a moving average or two can be applied. Below are some examples of this indicator with results of buying and selling the moving average cross over with each.
This chart of the S&P 500 shows the results of 15 trades (9winners,6losers) going back to July 14th,2003. The average winner was 57pts while the average loser was 26pts. The system kept you out of the market 498 days of the 1449 days tested.
This chart of the NDX-100 shows the results of 15 trades (8winners,7losers) going back to July 14th,2003. The average winner was 114pts while the average loser was 39pts. The system kept you out of the market 527 days of the 1449 days tested.
This chart of Globalsantafe (GSF) shows the results of 12 trades (10winners,2losers) going back to July 14th,2003. The average winner was 5.4pts while the average loser was 1.5pts. The system kept you out of the market 500 days of the 1449 days tested.
These results are from just using a moving average crossover on this pivot volume indicator. It was not optimized and used 2 moving averages based on standard Fibonacci numbers. These results did not outperform the buy-and-hold returns in the cases of the indexes, but in many liquid stocks tested it did outperform. The next post will deal with expanding this idea to include this indicator on two time frames along with some more widely known indicators.
If you have a stock you would like back-tested with this indicator, send an email to firstname.lastname@example.org along with the range of dates you would like tested. This indicator was not created to become a trigger to buy or sell, but to give an indication of when to be looking to be in a stock or market. With a little modification with oscillators and trend following indicators, this could turn out to be a helpful tool in building an automated trading system.
at 1:40 AM