Replies to post #6028 on MDA - Market Direction Analysis (MDA)

[augieboo]

Cyclical Bull Starting? It's possible.

Yep Marc, you read that right! {G}

I think it's possible. Read on for my reasoning.

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1. Background on Oscillator Ranges

Everybody who uses them knows that bounded oscillators (such as RSI and Stochastics) move in a range between zero and one-hundred, right?

Well, yes and no.

It's true that zero and one-hundred are the theoretical boundaries of the movement of both of these oscillators. When adjusted properly, however, "bounded" oscillators do not in fact move back and forth between zero and one-hundred. In fact, the true range of a properly adjusted oscillator depends on whether the market it is being used to describe is in a bull or a bear phase.

This is easiest to see with the RSI, because the default "canned" setting of 14 periods displays this effect quite readily. It is not so easy to see with other oscillators, such as stochastics, because the canned settings for stochastics are so twitchy that it obscures this effect from site most of the time.

2. Why I think we may be seeing the beginning of a cyclical bull starting.

I'm going to post a couple dozen charts to illustrate the point about oscillator settings as well as to illustrate why I think we may be headed for quite a bit more up from here -- (possibly even enough to qualify as a cyclical bull.)

At the moment, though, I have only one chart to post because it's the only one I had saved to my hard drive before my connection to StockCharts died on me. I'll post the rest of them as I can over the weekend. ):

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Okay, so, take a look at this chart.

See how the entire range of the oscillators changes depending on whether we are in a bull or bear market? (The green and yellow highlighted areas depict this.)

Now look at the area highlighted in blue. Compare it to the area highlighted in yellow. Notice something weird? The RSI, at 56.9 is clearly near the top of its bear market range, but the stochastic, at just 34.54 is just turning up from oversold. The blue area just doesn't "fit" with the yellow area, does it?

Now compare the blue area to the green area. See the difference? The blue area would look right at home in the green area, no?

HMMMM...

Is this conclusive proof of a new cyclical bull starting? NO! But please don't make any snap judgments based on this one chart. When I have a chance to post a bunch more of them I think you'll see what I'm driving at much more easily. Then we can discuss whether we all think this means something or not.

(:

augie