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
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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


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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.

Searching For Triangle Pattterns

"Arithmetic! Algebra! Geometry! Grandiose trinity! Luminous triangle! Whoever has not known you is without sense!"

Comte de Lautreamont

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Triangle patterns can prove to a profitable pattern to come across. In its simplest form it is a series of lower-highs matched up with a series of higher lows. This contraction in price is usually accompanied by a decrease in volume as the triangle forms.

Using Telechart 2007 it is easy to write a simple scan to find this pattern. This is an example of a simple formula that finds very general triangle patterns.

H < MAXH5 AND
MAXH5 < MAXH13 AND
MAXH13 < MAXH34 AND
L > MINL5 AND
MINL5 > MINL13 AND
MINL13 > MINL34 AND
C > 5 AND
XAVGV8 > 1500

What this basically says is the high-today has to be less the the highest high for the past 5 days, and the highest high for the past 5 days has to be less than the highest high for the past 13 days, and the highest high for the past 13 days has to be less that the highest high for the past 34 days. The formula of the lower side of the triangle is the opposite; the low today has to be greater than the highest low over the past 5 days,and the lowest low for the past 5 days has to be greater than the lowest low over the past 13 days, and the lowest low for the past 13 days has to be greater than the lowest low over the past 34 days. The minimum price has to be greater than 5 and the 8day exponential moving average for volume has to be greater than 150,000 shares per day.

Here are some samples of the results of this simple scan.


EXM - Excel Maritime Carriers


QMAR - Quintana Maritime LTD.


MSCC - Micromsemi Corp.


KOG - Kodiak Oil & Gas


TMX - Telefonos De Mexico


URZ - Uranerz Energy Corp.

Changing the inputs in this simple scan can produce triangle pattern set ups on various time frames from intra-day patterns to monthly set ups. These are profitable patterns to trade on any time frame. Looking for longer forming triangles with enough width to project a sufficient move is a key element. A simple formula for projecting the profit targets from a triangle can be viewed here.

Telechart 2007 software is a very easy software package to write this and other scans with. It is very easy to sort for volume, moving average crossovers, results from custom indicators, ect. This can all be done on a focused group of stocks or an entire universe of stocks and indexes. If you can write your idea on paper, you can probably scan for it using their software. It is also available with a 30day free trial.(I use both Telechart and Metastock, if there are formulas you might need help writing, click the comment button above and I will try to help in any way I can.)

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EXM - Excel Maritime Carriers Ltd. (Excel) is a shipping company. It is an owner and operator of dry bulk carriers and a provider of worldwide seaborne transportation services for dry bulk cargoes, such as iron ore, coal and grains, as well as bauxite, fertilizers and steel products.

QMAR - Quintana Maritime Limited is an international provider of dry bulk marine transportation services. Dry bulk vessels transport a variety of cargoes, including coal, iron ore and grain.

MSCC - Microsemi Corporation (Microsemi) is a designer, manufacturer and marketer of high-performance analog and mixed-signal integrated circuits and high-reliability semiconductors. The Company's semiconductors manage and control or regulate power, protect against transient voltage spikes and transmit, receive and amplify signals. Its products include individual components, as well as integrated circuit solutions. The principal markets the Company serves include defense, commercial air/space, industrial/semicap, medical, mobile connectivity, and notebook/liquid crystal display televisions (LCD TVs)/display.

KOG - Kodiak Oil & Gas Corp. is an independent energy company focused on the exploration, exploitation, acquisition and production of natural gas and crude oil in the United States. The Company’s oil and natural gas reserves and operations are concentrated in two Rocky Mountain Basins. All of its drilling activities are conducted on a contract basis by independent drilling contractors. The Company does not own any drilling equipment. Kodiak Oil & Gas Corp. explores for conventional and unconventional gas plays in the Green River Basin in Wyoming and Colorado, and for oil in the Williston Basin in Montana and North Dakota. Its oil is transported mostly by trucks and, if available, pipelines.

TMX- Telefonos de Mexico, S.A. owns and operates telecommunications system in Mexico. It is a nationwide provider of fixed-line telephony services, as well as fixed local and long-distance telephone services to more than 22,800 locales. It also provides other telecommunications and telecommunications-related services, such as corporate networks, Internet services, directory services, information network management, telephone equipment sales, satellite services, paging services and interconnection services to other carriers. It offers voice, data and Internet services in Brazil, Chile, Peru, Colombia and the United States.

URZ - Uranerz Energy Corp., formerly Carleton Ventures Corp., is engaged in the acquisition, exploration and development of uranium properties. The Company owns interests in properties in Wyoming, United States; Saskatchewan, Canada, and Mongolia. It has entered into joint venture agreements for each of its Saskatchewan and Mongolia properties, whereby the joint venture partner for each property can earn an ownership interest in the property. Uranerz is an exploration-stage company.

Phi Ratios

"The good, of course, is always beautiful, and the beautiful never lacks proportion."

Plato



This is the slope of the Fibonacci sequence of numbers. In this sequence each number is the result of adding the previous two numbers.

1+2=3,3+2=5,5+3=8,8+5=13,13+8=21,21+13=34,34+21=55,55+34=89...

This sequence can keep going on, but this is enough of an example to make the simple point about the ratio between each number in the sequence. The ratio of each successive pair of numbers in the series approximates phi (1.618. . .) , as 5 divided by 3 is 1.666..., and 8 divided by 5 is 1.60. In the 12th century, Leonardo Fibonacci discovered this simple numerical series that is the foundation for an incredible mathematical relationship behind phi.

This ratio and relationship of numbers can come in handy in when studying charts for entry and exit points. This can be a result of a hidden sense of order or just a self fulfilling fact because so many people use this concept and write computer programs to filter for these ratios.



There is a tendency to look for prices to flow along in what many feel is an orderly fashion similar to a 45 degree angle. This can happen at times, and often a 45 degree long term trend line can act as support. It real world trading, very often prices pull very far away from this ideal trend line and act in a bullish boom to bust sequence. This sequence is healthy and a product of human actions of hope, fear, greed, and at times irrational exuberance. This boom to bust sequence follows this phi ratio. In the chart above of Chindex International, the blue boxes mark these little boom to bust sequences. The bust part of the sequence isn't a bust in price, but more of a consolidation of prices. The bust can be in the hopes of people who bought the high, as their hopes were replaced by fear. Once the actions of fear are acted out, then the sequence can start again.

Looking for a triangle pattern in these type of scenarios can make entries and exits a little easier; eliminating the tendency to act out of hope and fear.



This is the same chart of Chindex International with one triangle marked. Applying the Phi sequence ratio to determine price targets is not very difficult. Count the days in the formation of the triangle to determine the midpoint. Then take this midpoint number and multiply by 1.618,2.618, and 4.238. These ratios are calculated by dividing out numbers in the sequence.

144/89 = 1.618
144/55 = 2.618
144/34 = 4.23

This triangle strategy can work on many time frames. An example in an earlier post can be seen here.

This is a chart of Interoil International, another example of the sequence being applied to give estimated targets and eliminate the hope and fear battle.



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This is a chart of the S&P 500. Today is an important day to see if the market can hold the gains from Friday which occurred on higher volume. This volume was because of option expiration, but still is a key day to watch going forward. Based on the opening range strategy, 1547 is the next target, with the old high from 2000 not far from that level.



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CHDX - Chindex International, Inc. (Chindex) is engaged in the provision of healthcare services and the sale of medical equipment, instrumentation and products in several healthcare markets in China, including Hong Kong. The Company operates in two business segments: Healthcare Services division and Medical Products division.

IOC - InterOil Corporation (InterOil) is developing a fully integrated oil and gas company in Papua New Guinea and the surrounding region. It has four business segments: Exploration and Production, which is the upstream business segment that explores for oil and natural gas in Papua New Guinea; Refining, Marketing & Liquefaction, which is the midstream business segment that markets the refined products it produces in Papua New Guinea both domestically and for export; Wholesale and Retail Distribution, which is the downstream business segment that distributes refined products in Papua New Guinea on a wholesale and retail basis, and Corporate.

Off To The Races Again...

This is the updated chart of the S&P 500 showing support and resistance levels based off of the yearly opening range. The market held the 1500.43 area and in yesterday's rally went right to the 1524.10 target. The next target level is 1547.77. Which group will carry the market to these levels? The energy sector has been a leading sector, and technology has started to receive some analyst upgrades the last few days. Its going to take a group effort to get to that next level. Today is option expiration so volume should be high, if the futures, which are up 10 right now, can hold their gains, it could be off to the next level.



This is the corresponding chart for the Nasdaq Composite Index.

Having been trading from the short side of the market the last few weeks, the opening range system has been a great trigger on when to cover trades and actually go long the market. Buying dips is still the method that is working. As bad as some sell offs feel, they don't seem to have very much follow through. When the market opens following a large down day, it doesn't take long for selling to dry up and short covering and buying to follow. It is a great trading environment. Below are two charts for the intra-day futures from Wednesday and Thursday. The levels are marked along with the opening ranges. A review of this concept can be read here.



It doesn't take to many days like this to make a great month.

This is the same chart with Thursday's range and target.



The next article will deal with why certain levels are real targets and other should be ignored. This is can be a very important edge in the options market and when setting price targets. The slopes below hold some clues. Trade charts that have Fibonacci slopes.

At The Crossroads...

"Do you really like a particular stock? Put 10% or so of your portfolio on it. Make the idea count … Good [investment] ideas should not be diversified away into meaningless oblivion."

Bill Gross

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The S&P 500 has retraced 50% of the down move from the end of last week. This puts things at an interesting juncture. The bounce has been on very light volume and after a great recovery from the end of February-beginning of March sell off might make the thought of taking some chips off the table a prudent idea. How much more upside does the market hold with the current technical pattern? For a move higher to continue, a consolidation in both price action and time is needed to base any move off of. As this forms, it is likely that certain levels will be tested to see what underlying strength really exists.



This chart shows the S&P 500 with opening range target levels marked by the dashed green lines. The recent price move is measured by a standard Fibonacci re-tracement calculator. The 2 day rally reached the 50% level of the sell off shown by the three large candle stick days. These three selling days were also accompanied by increasing volume. The two recent positive days however happened with very light volume, indicating that the buying interest/pressure was not as strong as the previous selling.

Some number to watch today are below:
Pivot 1509.33 (High + Low + Close)/3
3Day Pivot 1509.03 (Highest High 3 days + Lowest Low 3 days + Close)/3
Close 1509.12

These three numbers are all extremely close together. Any significant move above or below these numbers could prove to last for a couple days. With the weakness in volume the last 2 days, a move below could come with an increase in volume. The next opening range levels are 1500.43 and then 1476.76. How the market acts around these numbers could be important.

Recent Low 1487.41
+2 Level 1476.76
Fib Extension 1453
+1 Level 1453



This is an intra day chart of the September contract for the S&P 500 futures for the last week. It shows the size of the sell off and how the market is in an area that the recent 2 day rally could stall. This minor trend line is important to watch. It is also worth noting that this is the September Contract, and some rollover trades effect volatility. This Friday is when June options expire and June futures will stop trading and September will be the lead month. The opening range system can be applied to the first 3 days of this new contract.

Here are some corresponding charts for the OEX S&P 100 and the Nasdaq Composite Index.





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A trade that worked great back in February/March might work again if commodities stay strong. The post Red Right-20 Bingo Cross covers the idea. Below are the current charts.





Has the realization that rates are going higher caught people off guard? From the look of this chart that is what has happened. This is magnified by the roller over from the June contract to September being the lead month. Things could calm down, but there are still people on the wrong side of this trade.

Advance/Decline Ratio and Opening Range Swing Levels

"Fiscal policy is the other ladle in the macroeconomic punch bowl, and consistency in use of the two ladles is powerful, and inconsistency can be injurious."

Robert Rubin
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Today and probably this weekend will be a time many of the carnival barkers on television will bring out ever cliche to describe the events and sentiment over the past few days. Prices can not go up every day, and when they do it can come with a price to pay when they don't. The chart above is of the S&P 500. It includes the advance decline moving average(red line in the top pane), and the target levels based off of the opening range from the beginning of this calendar year. The next support line is 1476.76, and should that not hold, 1453.09 is next. As volume increased yesterday, there should not be a rush to buy. It is worth it to wait for a short term base to form before looking for an entry. The sell off in the end of February and into March is market in the green box. As prices started to stabilize, there was a clear divergence in the advance/decline moving average. Prices made a lower low while the moving average showed that the new low prices didn't have the same selling momentum as the sell off before. This showed that it was time prices to reverse. It will take time for this setup to happen again, but it is worth the wait. Don't try to catch a falling knife--cliche #1.



This is the corresponding chart of the Nasdaq Composite Index. It had the same divergence set up in March. Its rally was not as strong as the Energy/Commodity heavy S&P 500, but it still put in a nice short term bottom.

Interest rates are something to keep on the radar screen. In this part of June the holders of futures contracts are closing positions, expecting to take delivery, or rolling over into the September futures contract. In past years this has caused extreme moves. Not so long ago there was the opposite move when one of the largest firms decided to hold their contracts and take delivery in a market that was overly short with not enough physical bonds to deliver. This caused rates to go down as this roll over occurred. In this cycle holders of long futures expiring in June were forced to sell and roll over into September to maintain their long positions. This is not the reason rates go higher, but it just adds to the velocity of the move. So June, September,December,and March are months to watch.

Below is a chart showing the 30yr and 5yr interest rates. This straight up move as of late should slow, but this won't mean that all is clear and rates are going lower. Don't get fooled by the same talking heads on television that said the Fed was going to stop raising rates at 4.25%. Inflation is global, no matter how manipulated our CPI number is.



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For those traders not accustomed to shorting stocks or shorting futures to take advantage of down moves, it can be a great time to do research and develop ideas for when the market bottom comes. Charts are one aspect of picking levels, but digging around in fundamentals can lead to discovery of entire sectors that could prove profitable on the next move up.


Value Line -- 71 years of Proven Performance

Trading System Idea 1 and Interest Rates

"I would rather have a mind opened by wonder than one closed by belief"

Gerry Spence




This is a chart of the S&P 500 Index year to date. The top pane shows the red moving average for the advance/decline ratio. The dashed green lines mark the levels based on the opening rage system discussed earlier; to review click Here. The bottom section of the chart shows an indicator called the Directional Movement Indicator. This indicator is comprised of 5 factors, but for the time being charts here will deal with just three.

The red and blue criss/crossing lines are -DI and +DI respectively. When the +DI crosses above the -DI it is considered bullish. If just using this indicator to establish long and short positions, this cross would result in a buy. The last cross occurred on 4/13/07 and a long position would have been established at the close, 1452.85. The +DI is still above the -DI so this indicator would still be in that long trade.

Indicators by themselves can be triggers for getting into and out of trades. They can also be combined with other indicators depending on if the market is trending or range bound to assist in developing a system that can help take the emotion out of trading/investing. Combining indicators with pattern recognition formulas and then adding risk management parameters can result is some really useful trading systems. The end result is a complex system, but each piece can be simple by itself. Over the next weeks, a system will be built using Directional Movement Indicator as a base. Many more indicators and pattern formulas will be add one at a time. This will NOT create a holy grail trading system, but a functional one that can be used as a basis for bigger and better things. The money management formulas will be the last part, because money management is the most important aspect of trading. A really poor system can work with exceptional disciplined money management parameters.

Below are two reports from running +DI crossing over -DI on the S&P 500 and the Nasdaq 100 Indexes. These are not complete systems, these are just for informational purposes as to the potential this indicator might have as a foundation to build upon. Theses reports were run from June 1999 until June 5, 2007.







These results are just for the long(buy) side of the system, there were no short trades. There isn't much that sticks out as fabulous about these results except that the winners are larger than the losing trades, and that one result had more losing trades than winners, yet was still positive(NDX 16 winners, 20 losers).



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A look at interest rates....