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Same Trading Range, New Technique
AT A GLANCE: Volume declined both nominally and relatively, while the averages seesawed all day. There were no changes in the indicators, but the Summary Index did manage to rise from 7.85 to 7.90. The RSI closed just below its uptrend-line but is likely to rise because two down days will be eliminated from the calculation today and tomorrow. Based on a new method of Price/Volume Charting which I introduce today, the percentage of bullish Dow stocks has dipped below the 50% level for the first time in eight months. For the last several months I have been working on a new technical method that derives from the basic principles of Price/Volume Charting. It surveys the individual stocks making up the Dow Jones Industrial Average. I'll report the first results of this new technique below. But first, an update from that good old trading range... The number of positive and negative indicators remained balanced at 8 each, while the remaining 13 are neutral. The Summary Index moved up from 7.85 to 7.90, and if there are no further changes it will reach 10.20 a week from today. I have posted the projection for the SI in pink on the chart below.
The S&P added 1.93 to close at 1151.03, while the NASDAQ lost just over 6 points. Believe it or not, the S&P has closed up in 5 out of the last 6 days, yet added only 7.7 points as a result. Volume fell by more than 11% yesterday, when compared to Tuesday. We will know when we're out of the trading range when the volume increases.
The 14-day RSI indicator closed just below its uptrend-line yesterday while the S&P managed to remain above its line. However, we will drop two negative days from the calculation today and tomorrow, so there is a chance that the RSI will climb back above the trendline. The 40% level is the next important number to remain above. I still rate the indicator neutral.
The S&P Price/Volume Chart reflects the low volume trading range. It will have nothing to teach us until there is a breakout in one direction or the other, on big volume -- at least 1.8 billion.
The NASDAQ Price/Volume Chart is shedding no light on the market, except for the strength it has displayed in remaining above the uptrend-line.
The Dow Price/Volume Chart is churning within the trading range, as are the others.
The Gold/Silver index (XAU) Price/Volume Chart remains neutral between its two trendlines. Volume picked up a bit yesterday, but it is still far below that seen in January.
The Smart Money Indicator (bright blue line) added another 15 points due to the opening decline. However, it remains negative.
I have been working for months on a new technique that is based on the Benjamin Crocker Price/Volume Charts. While the Crocker technique works well for studying market indices, when it comes to studying individual stocks the much higher volatility limits each PV chart to a brief snapshot of price and volume information. The problem is that after a few weeks the lines start to cross and obliterate what is going on, making it necessary to draw another chart covering fewer days. Then, when you draw the new chart you have lost all of the prior reference points. As a result of this shortcoming I have never been able to apply the technique to individual stocks and cannot therefore, use it as a screen for selecting technically strong or weak stocks. The modification that I have developed captures the essence of the Crocker charts for each day's action, and permits one to plot as many days as one wishes without causing confusion. To test the technique I have drawn the charts for the 30 Dow Jones stocks, and have been evaluating them every day. I rate each stock either buy, sell or neutral each day. The following nine Dow stocks are rated buy, based on the new Price/Volume Charts:
and the following ten are rated sell:
Below I have plotted the results of the study of the 30 Dow stocks in the chart below. The pink line represents the 5-day moving average of the percent of stocks rated buy out of the total of the buys and the sells. The dark blue line is the Dow itself. I have information going back just to last May, but yesterday the percent buys dropped below 50% for the first time since then. It is too soon to reach a conclusion about technique, and I am now busy charting and evaluating the members of the NASDAQ 100 for comparison. However, it will be interesting to see how the percentage of strong Dow stocks performs with reference to the trading range and to the eventual breakout.
Fred Goodman, CFP, is a fee-only Certified Financial Planner based in Los Angeles. You can send him your questions and comments via e-mail at Fred@MarketMonograph.com. E-mail sent to Fred may be edited for clarity and brevity and published on this web site, and may include your name unless you request anonymity or specify not for publication. The charts and commentary represent what Fred thinks about the market and what he is thinking of doing for his own account and for accounts he manages at the time of writing. Fred, his clients, or his family may have positions or may make trades in securities mentioned in these commentaries. There is no guarantee that you will profit from trading as discussed herein. You may lose money and Fred assumes no responsibility for what you do or do not do with this information. Copyright © 2001, 2002, 2003, 2004, 2005 and 2006 Fred Goodman and Trend Macrolytics LLC. All rights reserved.Fred@MarketMonograph.com 
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