PriceTeam

[PriceTeam]

Rainman! Accumulation/Distribution indicator. Here's the lowdown (courtesy of stockcharts.com).

A guy named Chaikin derived a formula to calculate a value based on the location of the close, relative to the range for the period. We will call this value the "Close Location Value" or CLV. The CLV ranges from plus one to minus one with the center point at zero. The CLV is then *multiplied* by the day's volume on daily charts and the week's volume on weekly charts. (The exact formula is shown at the bottom.)

CONCLUSION: The Accum/Dist is working relatively well on daily charts but is creating a huge distortion on weekly charts. Why? Because if the market closes at the high, the entire week's volume is added to the Accum/Dist line. The indicator is working on daily charts because if there is a selloff mid-week, the daily selloff volume is substracted from the line.

So let's say there was a high volume selloff mid-week (which has happened) and then the market recovers, closing at the high (CLV=1). (CLV * Vol) means the entire week's volume is added to the line, and this is not an accurate representation of what is happening beneath the surface.

Also, the weekly volumes have been at historically extreme levels! Now this information may prove significant from the point of view of the future, but we don't know absolutely (meaning this may still be a long-term market top--the entire structure from mid-1996 to present). In general, we know that sustainable markets are built carefully, one steady, thoughtful move at a time. The move up from March 9 is far from steady or careful. It has been a mad rush to cover short positions and to get money back into stocks FAST. We know this based on the $VLE chart which shows that in the last 9 weeks we have moved up the same distance covered in 1 year beginning in March 2003. Now the 2003 rally was a huge one off deeply oversold conditions, but it was executed carefully, and that stable base led to a multi-year bull market. CONCLUSION: This latest rally was nothing more than a bear market rally.

The market is in a euphoric state (drunk on greed). Euphoria is a heartbeat away from sheer panic. Certain world events are dismissed by the market, and others move it. For example, the market wisely dismissed the swine flu thing (for now). The market will absolutely react if people stop going to malls or avoid airlines.

In general, we do not want to trade trying to guess when something is going to go wrong in the world. As a matter of sheer probabilities, the odds are against you about 100 to 1 (my rough estimate based on the last 5 years of watching the market daily).

Ted

==================================================
THE FORMULA:

C=close, L=low of day, and H=high of day:

[((C - L) - (H - C)) / (H - L) ] = CLV

This yields 5 possibilities:

1. If the stock closes on the high, the top of the range, then the value would be plus one.

2. If the stock closes above the midpoint of the high-low range, but below the high, then the value would be between zero and one.

3. If the stock closes exactly halfway between the high and the low, then the value would be zero.

4. If the stock closes below the midpoint of the high-low range, but above the low, then the value would be negative.

5. If the stock closes on the low, the absolute bottom of the range, then the value would be minus one.

The CLV is then *multiplied* by the corresponding period's volume, and the cumulative total forms the Accum/Dist Line.