Tuesday, November 25, 2008

Sample Linear Regression Charts

S&P 500 Index 50 day linear regression with 2 standard deviations(click to enlarge)

NDX 100 Index (click to enlarge)

Dow Jones Industrial Avg. (click to enlarge)

U.S. Dollar Index (Click to enlarge)

These charts are generic charts of the three major equity indexes and the U.S. Dollar Index. After the strong rally starting last Friday, equities in general are approaching the upper 2 standard deviation line. This does not mean that prices will stop there, it does mean that crossing that line will show how much momentum there is at that level. If it is weak volume, expect prices to retreat back to the linear regression line.

The U.S. Dollar Index is outside the 2 standard deviation line below the linear regression. This shows the extreme move over the past two days has reached an extreme. It is important to watch the next day or so and how prices act as they rally back to the 2 standard deviation line. A weak rally followed by a failure to re-establish prices inside the channel will point to a change in trend.

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