WHY PPO(1,19,0) ?
The Chartist Overbought/Oversold indicator is the
19-day exponential moving average of the Value
Line Geometric. We use this index because it
tracks over 1,700 stocks and represents roughly
90% of the entire market.
Whenever the Value
Line Geometric falls 3% or more under its 19-day
exponential moving average, it reflects a heavily
oversold condition on an intermediate basis.
Conversely, a reading of +3.00 or greater suggests
an overbought market. A reading of -3% has
often caught the exact bottom of the selloff that
was in effect at the time.
While a reading of -3.00 weights the odds in favor
of a rally, there is no guarantee that the market
cannot fall to more extreme oversold levels. We
have used this indicator for decades and have
personally found it to be more helpful than the RSI
especially in oversold markets.