TECHNICAL INDICATORS Volume Line: ...

TECHNICAL INDICATORS

Volume Line: Indicates changes in the amount of wealth coming into, or leaving, an equity market (or a stock). coin coming in is bullish because it portray by actions accumulation of stockspresumably by informed people; standard of value leaving is bearish because it depicts informed reductions of positions in stocks.

Relative nerve Index ("RSI"): Indicates the moment of a market (or stock) during the last 14 weeks. A market (or stock) is considered overbought (time to sell) when its RSI impels above 70% and over-sold (time to buy) when the RSI stirs below 30% (see May/June 1993 article). The book Line and the RSI are best used together to provide purchase and Sell signals. The RSI should always be viewed as subordinate to the dimensions Line.

Moving Average: polisheds out weekly fluctuations and provides a relation point for comparison purposes with the rife level of the Index or the bulk Line. Calculated as the average of the last 30 weekly closing prices.

Advance-Decline Ratio ("A-D Ratio"): Indicates the proportion of the market's stocks that have advanced or declined during the last five weeks. A market is considered over-bought when the A-D Ratio persuades above 58%; oversold when the Ratio very littles below 42 %.

Buy Signals

When an index (or stock) reaches a of the present day low level (price) without the compass Line also making a unique novel low (i.e. failing to confirm the strange low level) and the RSI is over-sold (i.e. below 30%)

A major advance can be reckon uponed when both the Volume Line and RSI fail to confirm a recent low for an index (or stock).

When the distance that the index (or price) has mov below its moving average is greater than the distance that the tome Line is below its moving average and the RSI is over-sold

A market rally can be look forward toed when an index reaches a fresh low level but the A-D Ratio does not.

Sell Signals

When an index (or stock) reaches a recent high level (price) without the mass Line also making a unique strange high (i.e. failing to confirm the novel high level) and the RSI is over-bought (i.e. above 70%)

A major market decline can be look forward toed when both the Volume Line and RSI fail to confirm a novel high for an index.

When the distance that the index (or price) has mov above its moving average is greater than the distance that the body Line is above its moving average and the RSI is over-bought

A market sell-off can be awaited when an index reaches a of recent origin high price but the A-D Ratio does not.

For the week expirationed November 15, 1996, the TSE 300 and 35 made just discovered all-time highs which were confirmed by dint of their Volume Lines doing likewise. The market throughout the past few months has gone up like a rocket

Three things support a market rally: under-valuation, useful return on investment, and subdued interest rates. Think of market support as a three-legg stool. It's almost impossible to find a goodquality stock that isn't extremely expensive by the agency of historical standards, so that leg has been hesitating Dividend payouts, in most cases, are miserly, to say the least, in the same manner that leg has collapsed too. to such a degree we're left with low interest rates, the lowest we've seen since the late 1950 A onelegg stool. It doesn't take a genius to imagine what will happen when that last leg is kicked not at home

The current stock market is reminiscent of the real estate market of the 1980 When the average price of a house in Toronto, for example, was $100000 we notion it was way overdone; when it reached $200000 we meditation it was insane. Then it hit $300000 and collapsed. That was what we call a "blowoff" and that is what I think is happening in the stock market now.

Currently in Toronto, the RSIs for the TSE 300 and 35 are 95 and 93 respectively. Since they can solitary go as high as 100 you can diocese how over-bought the averages are. The five-week A-D Ratio (see chart) is 551% (anything above 58% is over-bought for a like reason it's close). And the percentage of stocks above their 10- and 30-week moving averages is 683% and 670% respectively (anything above 70% is over-bought thus they're close too).

In recently made known York, the NYSE's RSI is overbought at 80% (although not as overbought as the TSE's). The 5-week A-D Ratio is 569% (remember, throughout 58% is over-bought), and the percentage of stocks above their 10- and 30-week moving averages is 652% and 660% respectively (getting finish to 70%). In addition, the percentage of Bullish Advisory Services (those are the clan who write market letters) as compiled from Investors' Intelligence is 52.1%. History exhibits that, whenever the Bulls exce 55% for sum of two units or more weeks in a affray an important top is usually at hand. (By the way, you can procure the Bullish and Bearish Advisory Services in Barrons, a week late.)

So the dives are lining up but they're not all in place, to this time Here's what happened prior to the 1987 crash. The market rallied sharply into March. The convolution Lines confirmed the highs. The 5-week A-D Ratios and percentage of stocks above their 10- and 30-week moving averages were overbought and the edict s were above SS% for sum of two units consecutive weeks. The market sold opposite to sharply into May and then began to rally again to a novel high in August. The 5-week A-D Ratios and stocks above their 10- and 30-week moving averages went back up into overbought territory and the rescripts climbed back above 55% for three consecutive weeks. on the contrary this time the Volume Lines did not confirm by means of going to new highs themselves. The market went sideways into October and then through the whole extent of the cliff.