Beta Beware

"Any onset of increased investor caution elevates risk premiums and, as a consequence, lowers asset values and promotes the liquidation of the debt that supported higher asset prices. This is the reason that history has not dealt kindly with the aftermath of protracted periods of low risk premiums."

Alan Greenspan

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This is a simple chart of the S&P 500 Index and the Nasdaq 100 Index. The bottom section of the chart shows the spread ratio between the two, NDX / SPX. The blue line is a 21 period moving average of this ratio. The slope of this average is getting stronger and stronger since early June. This signifies that technology stocks have been outperforming the overall market. This could be a result of a rotation out of the financial and banking sectors. The chart below shows the ratio between the S&P 500 and the XLF Financial Spdr.



One of the stronger groups leading the S&P 500 higher has been the energy sector. These are powerful movers at times when they are in rally mode, and having felt the pain of being on the short side of this group at times, sellers seem to almost disappear at times in areas of strong short covering. Lately the stocks that have received analyst downgrades have only suffered a day or two of weakness and then are off to the races again. Valero Energy has been the subject of strong short-selling over the past months, but it is still holding strong and as a result has some guaranteed buyers if it goes much higher. Below is a chart of the S&P 500 comparing the XLE Energy Spdr.



As can be seen, this chart is showing the XLE close to an upper resistance line. This line might not act as strong resistance, but when compared to the move oil has made lately and the Natural Resource ETF-IGE, this could point to a spot to take some profits.



The chart of the U.S. Dollar Index below shows the dollar is approaching an important level from the low it made in 2004. What will be the reaction globally if and when the dollar makes a new low? Is it already factored in or will it cause people to take a second look at the macro picture. Just how great is the recent global expansion?



"This is far and away the strongest global economy I've seen in my business lifetime," U.S. Treasury Secretary Hank Paulson.

He went on in an interview to say:

On risks: "We haven't had a global financial shock since 1998. I believe that these large and dramatic increases in private pools of capital [hedge funds and private equity] and in the credit derivatives markets since then have helped manage and disperse risk and make the economy more efficient. When we do have one - and it's when, not if; that's not me being negative, it's just that we're not going to defy economic gravity - we'll be seeing for the first time how some of these instruments perform under stress."

One preventive solution is to review portfolios to ensure that diversification and balance match the initial intent when they were created. It has been very easy to fall in love with the high flying energy and metal stocks. This could result in a portfolio that is severely overweighted in these areas. It is worth booking some profits and regained a diversified weighting. This does not mean sell all your winners. It means taking some profits from a group that has rewarded you well for taking risk and re-establishing found fiscal discipline so you won't have to take the same action when possible economic gravity shows it still exists. In the crash of 1987 because of the strong performance leading up to this fall, many money managers were not balanced correctly and this resulted in them doing this re-balancing out of necessity rather than planning. At a time when they should have been buying stocks they were selling. Stay ahead of the herd. Discipline pays off in the long run. Look at the record of David Swenson who has run Yale's endowment for the past 2 decades and averaged 16.1% return. His book, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, is a great resource for what really goes in a well run endowment. He also has a book, Unconventional Success - A Fundamental Approach to Personal Investment, that is written with the individual investor in mind. Both of these books have a lot to offer and are genuinely written educate the reader. Not a lot of hype, just honest wisdom from a true master.

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.

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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 ttpblog@att.net 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.

TeleChart Sample Scan Formulas(PCFs)

These are some sample scan formulas.

1. Closing price within 1% of 200day moving average.

C >= AvgC200*0.99 AND C <=AvgC200*1.01

2. Closing price within 1% of 50day moving average.

C >= AvgC50*0.99 AND C <= AvgC50*1.01

3. Price crossing 50day moving average.

C1 < AvgC50.1 AND C > AvgC50

4. Price crossing 50day moving average with an increase in volume.

C1 < AvgC50.1 AND C > AvgC50 AND V > AvgV20

5. 4day moving average crossing up through 9day moving average.

AvgC4.1 < AvgC9.1 AND AvgC4 > AvgC9

6. New 5day High

C >C1 AND C > C2 AND C > C3 AND C > C4 AND C > C5

7. First day up in the last 3days.

C > C1 AND C1 < C2 AND C2 < C3

8. Close up on declining volume.(short scan)

C > C1 AND C1 > C2 AND C2 > C3 AND V < V1 AND V1 < V2 AND V2 < V3

9. MACD Bullish Crossover

XAVGC12 - XAVGC26 > XAVG(XAVGC12,9) - XAVG(XAVGC26,9) AND (XAVGC12.1 - XAVGC26.1 < XAVG(XAVGC12.1,9) - XAVG(XAVGC26.1,9) OR XAVGC12.2 - XAVGC26.2 < XAVG(XAVGC12.2,9) - XAVG(XAVGC26.2,9))

10. Stochastic Cross Up Through > 20

STOC12.5.1 < 20 AND STOC12.5 >= 20

11. Stochastic Cross Down Through < 80

STOC12.5.1 > 80 AND STOC12.5 <= 80

12. Short Term Triangles(simple)

MAXC2 < MAXC2.5 AND MAXC2.8 < MAXC2.21 AND MINC2 > MINC2.5 AND MINC2.8 > MINC2.21 AND C > 5 AND XAVGV13 > 1500

13. Longer Term Triangles(simple)

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

14. Trending Consolidation 25day

(MAXH25 - MINL25) / ((AVGH25 - AVGL25) * 25) * 100

15. Close up with 2x Average Volume

C > C1 AND V > 2 * AVGV21

These are just some of the simple scans that can be written with Telechart's very simple language. The samples here are posted to provide a starting point for understanding the potential scanning software has for saving time in finding technical set ups.

If you have any ideas that you are having trouble writing the appropriate code for, use the email below to ask a question. Having used the software for 8 years, I might be able to offer some time saving help. It is possible to create many custom indicators and take advantage of some of Telechart's proprietary indicators to come up with a routine that should lessen the time in searching for winning stocks. In the future I will be posting some of the ideas and custom indicators I have come up with. They might be of help, or they could be the spark for a greater idea by someone else.

Telechart subscription runs $29.99 per month. They have discounts for a yearly subscription, but the best part is they let you try the product free for 30days. Even if you don't find the product something you need, it could be worth it to take the trial and see what they have to offer. They also offer a real-time package for $99 a month, with discounts for the yearly subscription. They also offer a new software package, Blocks, which is great for back testing trading ideas.

Email for questions about codes mentioned above or writing new ones :

technicaltradingpatterns@gmail.com

Link for 30day Trial

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.