Replies to post #24725 on ajtj99's Market Pulse

[JMKel]

Schaffer leaves out the index options too.

[Koikaze]

This page contains explanations and descriptions for "LOOKING BACK" reports. Each report will carry a link to this page so those interested can gain a clearer understanding of the data reported. The reports attempt to provide a clear look at the current state of the market. (Updated 05/23/04, flg)

05/23/04, changed: VXN, VXO, OPTIMISM, ALERTs

(To avoid confusion with Darvas Boxes, I've changed my use of the term "box" to "range". Recent range is probably a more apt description, anyway. What I had been reporting as BOXVAL is now carried as CUM RANGE (for cumulative range).)


EXPLANATIONS AND DESCRIPTIONS

Some Worden Brothers labels (for example, the indicator names below) may creep into my notes. I'm not sure how troublesome this will be, but I would expect to be asked for an explanation if I use one without describing it.

OPTIMISM reflects my opinion of the market for the next several days. It is derived from the price action of approximately 7,000 stocks. It is an indicator, and, as such, may be wrong. Rising readings suggest the market will rise (or a falling market will stabilize). Falling readings suggest the market will fall (or a rising market will weaken).

Positive values are considered bullish and negative values bearish, but the values give no indication of the strength or duration of a move. Since negative optimism is a contradiction in terms, negative values should be labelled PESSIMISM, but I have no plans to change the label. The value of the OPTIMISM reading is probably less important than its recent trend. Extreme readings lead to ALERTs.

ALERTs are flags to warn of possible market surges or drops, and can occur on successive days. They make no pretense of predicting the direction or even the certainty of the move. They merely give a warning that a move is possible. ALERTs are triggered by excesses in the OPTIMISM index. The most recent alerts (as of this writing) were a series of 4 from May 10th through May 13th

VOLUME FACTOR is the daily volume on the NYSE and NASD (I ignore AMEX and OTC) in 1,000's, divided by 5,000,000. The 5 million is an arbitrary number. The volume factor is each day's volume as a percentage of 5 million and is used to relate one day's volume to another. The volume factor is applied to COMPOSITE (below)

PUT/CALL RATIO uses Zeev's method of excluding the QQQ's.

COMPOSITE is a combination of ten sets of numbers I've been accumulating for a year or so. They include the number of NYSE and NASD issues above/below their 10-DMA, a couple that rate the number of 209 Media General Stock Groups as bullish/bearish in different ways, and several that are generated using Worden Brothers software. The sets have different degrees of latency because some use 30-days and other 45-days of data. They are "normalized" (in terms of each other, not in terms of latency) by applying a factor to each set and then combining them. I only have data since last July 23rd, but the chart it produces seems to give a good picture of where the market's been.

RECENT RANGE, as used here, is based on the 15 trading days prior to today. When rating today's close relative to the recent range, the top of the range is the 2nd highest high and the bottom of the range is the 2nd lowest low in the past 15 days. We assign a value to the most recent close by applying a multiplier from the following table:

 
 +4 = out of range, above 
 +3 = at top of range 
 +2 = in top quarter of range 
 +1 = in 2nd quarter of range 
  0 = at midpoint of range 
 -1 = in 3rd quarter of range 
 -2 = in bottom quarter of range 
 -3 = at bottom of range 
 -4 = out of range, below 
 

These values are calculated for about 7,000 stocks, and summed. The CUM RANGE VALUE is the result. Like COMPOSITE, it seems to give a good picture of where the market's been.

VXN and VXO: show the current value and a weighted average of the most recent 5 days.

Most of the other individual items (DIA, QQQ, NASDAQ, DJ-30, etc.) have a POWER and a STRENGTH rating. These terms mean:

POWER is an indication of how an item is doing in relation to its recent history (about 40 days).

STRENGTH is the current close in relation to the "range" described above. Note that ZERO is the mid-point of the range, +.50 is the top of the range, and -.50 is the bottom of the range. Values in excess of those are outside the recent range.

The 10 INDICATORS are:
(The labels are from Worden Brothers)

T2100 Advance/Decline Line
T2102 Bolton-Tremblay
T2104 Cumulative Volume Index
T2107 % Above 200-Day PMA
T2108 % Above 40-Day PMA
T2109 % 1 Channel Above 200 Avg
T2111 % 2 Channel Above 200 Avg
T2117 52-week New High / New Low Ratio
T2125 Nasdaq Advance/Decline

I'm not impressed with the value of these indicators and have considered dropping them. For now, though, I'm keeping them up.

SUMMARY OF IMPRESSIONS FROM "LOOKING BACK" consists of notes on ideas that strike me as I make the report. I leave the old notes for about a week, for reference.

Fred