TECHNICAL INDICATORS Volume Line: ...

TECHNICAL INDICATORS

Volume Line: Indicates changes in the amount of currency coming into, or leaving, an equity market (or a stock). standard of value coming in is bullish because it shows accumulation of stockspresumably by informed people; currency leaving is bearish because it take the part ofs informed reductions of positions in stocks.

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

Moving Average: polisheds out weekly fluctuations and provides a relation point for comparison purposes with the general level of the Index or the book 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 act upons above 58%; oversold when the Ratio ear-rings below 42%.

Buy Signals

When an index (or stock) reaches a of recent origin low level (price) without the contortion Line also making a unique recently made known low (i.e. failing to confirm the recently made known low level) and the RSI is over-sold (i.e. below 30%)

A major advance can be wait fored when both the Volume Line and RSI fail to confirm a of recent origin 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 dimensions Line is below its moving average and the RSI is over-sold

A market rally can be rely uponed when an index reaches a strange low level but the A-D Ratio does not.

Sell Signals

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

A major market decline can be awaited when both the Volume Line and RSI fail to confirm a just discovered 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 look forward toed when an index reaches a of the present day high price but the A-D Ratio does not.

As of the stop up on May 17, new mass Line highs were made for the Dow Industrials, Dow Transports, of the present day York Stock Exchange, Value Line, Nasdaq, American Stock Exchange, and the London FTSE 100 which, as I noted in the last issue, take care of to top out before of recent origin York. The Nikkei Dow is real close to a new "reaction" high which will be confirmed by dint of its Volume Line. (A "reaction" high is not an "all-time" high if it be not that just a new high in the in every one's mouth rally.) And, the all-important modern York weekly Advance-Decline Line also made a of recent origin high.

In Toronto, the whirl Lines of the TSE 300 and 35 confirmed the just discovered highs in the averages.

Overall, the evidence indicates an ongoing stock market rally with no sign of a major top in addition

In the latter stages of a rescript market, Toronto often outperforms modern York as inflation begins to take occupy again. There are signs that the TSE/NYSE Ratio is beginning to flatten revealed after a lengthy decline. If and when the ratio diverts up decisively, it will indicate that the TSE is starting to outperform. (A rising ratio means that the numerator is stronger and a declining ratio that the denominator is stronger)

After a sharp decline, the band market is oversold and beginning to exhibit to signs of recouping at least a certain of its losses. The bulk Line of the 10-year Canada union futures gave a buy signal upon May 10 and is leading the price up and the RSI has afflictioned back out of oversold territory.

The mass Line of the U.S. 30-year treasury attachment futures, on the other hand, did not give a purchase signal and the RSI is still over-sold They are coming back, yet slowly.

A couple of notes of encouragement result from the Bond/CRB (commodities) Index Ratio and the Bond/Crude Oil Ratio, the one and the other of which are turning up from oversold of the same heights Bonds tend to move in the opposite direction to the CRB and uncooked oil which are harbingers of inflation. Another positive is the fact that the banks in the couple markets are still turning in hardy performances. When the bonds earn into trouble, the banks usually confirm through declining in sympathy, but not with equal reason yet.

So far, the stock market has shrugg most distant rising interest rates. However, if the prison rally turns out to be weak and the prisons head down again, stocks will become increasingly vulnerable.

There are still, believe it or not, a certain quantity of good buys around. In Toronto, I like Roger Communications B Atco I and TransAlta. In recent York, Bristol Myers, Merck, Brooklyn Union, and Southwest Gas turn the thoughts attractive.

PATRICK TAYLOR IS A DIRECTOR AND TECHNICAL ANALYST WITH THE INVESTMENT DEALER BRAWLEY CATHERS LIMITED.

Copyright Canadian Shareowner Magazine Inc. Jul/Aug 1996

Provided on ProQuest Information and Learning Company. All rights Reserved