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                                               Main Line Investors, Inc.

                                            Glossary of Terms

                      & How to Use This Market Analysis Service

 

1.      Key Trend-finder Indicators

 

These are collectively three indicators we track: The Purchasing Power Indicator, 30 day and 14 day Stochastic Indicators, and the 10 day average Advance/Decline Line indicators. These are the guts of our market analysis. They are short-term indicators, and are designed to find trends of two percent or more, which can be useful and profitable to cash market timing traders, options timing traders, and general investors. They are entry signals, not exit.

 

When all three generate a new signal, there is a good probability that prices will trend 2 percent or more over the short-term (several days). When one is in disagreement with the others, we consider that a sideways signal, meaning either the current trend is about to reverse, or a protracted sideways move is likely (over several days), which could hurt options traders, as options lose time premium value over time.

 

We consider the Purchasing Power Indicator to be the best and most important of these measures, however many people prefer the stochastic indicators. We like to use the A/D indicators as confirming indicators, meaning they add confidence to a trend if they are in agreement with the other key indicators.

 

2.      The Purchasing Power Indicator (PPI)

 

This is a proprietary measure of supply and demand momentum. We calculate it at the end of every day, based upon closing data. New buy signals are generated when this indicator moves 6 points above its recent low, and new sell signals are generated when this indicator moves 6 points below its recent high. It is calculated separately for each of the major stock market indices we cover: The Dow Industrials and the S&P 500 share the same PPI indicator. We also calculate this for the NASDAQ 100, the Russell 2000 small cap index, the HUI Gold Bugs index, and the Australia SPASX200 index.

 

We have found that supply and demand momentum is a terrific way to find short-term market turns (lasting from a few days to several months).

 

3.      The 30 day Stochastic Indicator

 

This is a measure of breadth momentum. It is calculated daily, using closing data. It measures the percent of stocks that closed above their 30 day average (which we call the Fast measure), and compares that to a five day moving average (the Slow measure) of the Fast measure. If the Fast moves more than 10 points above the Slow, after being on a sell signal, it generates a new buy signal. If the Fast moves more than 10 points below the Slow, after being on a buy signal, it generates a new sell signal. Readings above 80 indicate the Fast is overbought. Readings below 15 percent indicate the Fast is oversold. However, new signals require crossovers and cross-unders. This is a short-term indicator, useful to identify the risk of trends of more than 2 percent over several days or more.

 

4.      The 14 Day Stochastic Indicator

 

This is a measure of breadth momentum. It is calculated daily, using closing data. It measures the percent of stocks that closed above their 14 day average (which we call the Fast measure), and compares that to a five day moving average (the Slow measure) of the Fast measure. If the Fast moves more than 10 points above the Slow, after being on a sell signal, it generates a new buy signal. If the Fast moves more than 10 points below the Slow, after being on a buy signal, it generates a new sell signal. Readings above 80 indicate the Fast is overbought. Readings below 15 percent indicate the Fast is oversold. However, new signals require crossovers and cross-unders. This is a short-term indicator, useful to identify the risk of trends of more than 2 percent over several days or more.

 

5.      10 Day average Advance/Decline Line Indicator

 

This is a measure of breadth momentum. It is calculated by taking the difference between advances and declining issues each day, then taking a 10 day moving average of those differences. Whenever this ratio rises into positive territory, above a defined level for each stock market index, it is a buy signal. Whenever it falls into negative territory, below a defined level for each index, it is a sell signal.

 

We also use this measure to early identify possible trend turns coming over the horizon. If the direction of this plotted measure on a chart is in the opposite direction of the trend prices are headed, it often is a precursor to a coming price trend turn.

 

6.      The Percent Above 30 Day, 10 Day, and 5 Day Indicators

 

We monitor the percent of an index’s component stocks that are trading above their 30 day, or 10 day, or 5 day averages each evening after the close. This is important in finding when a price trend has reached an overbought or oversold level, which points out the risk of a counter-trend move occurring in the near future. The percent above 30 day looks for multi-week trend overbought and oversold conditions. The percent above 10 day is also helpful in watching multi-week trends. The percent above 5 day identifies when trend of small degree, of a few days, is likely to reverse. Measures above 80.00 are considered overbought. Measures above 90.00 are considered extreme overbought levels. Measures below 20.00 are considered oversold, and below 10.00 are considered extreme oversold

conditions.

 

7.      The Primary Trend Indicator

 

One of the tools we have in our arsenal to identify the status of a Primary Degree trend is a simple analysis of the 14 month moving average versus a Slower moving average calculation, the 5 month MA of the 14 month. It has been terrific at identifying multi-year trends, both up and down. While it is a little late in generating the buy and sell signals, it triggered a “sell” near the start of Primary degree wave (4) down, in mid 2000. What followed was a two and a half year, 39 percent drop into the wave (4) bottom on October 10th, 2002. It took a while for this indicator to confirm that the rally that started on October 11th, 2002 would in fact be a multi-year primary degree wave up, wave (5) up. But by October 2003, this analytical tool did in fact trigger a Primary Degree “buy” signal. Since then, there has been a three and a half year further rally to new all-time nominal highs. We got a near ”sell” signal in mid-2005, but the rally rejuvenated itself, continuing on its ”buy.” We require a 5 month moving average of the Spread between the Fast and Slow to reverse in a new direction for 3 consecutive months in order to declare that a new primary trend, a new multi-year trend, is underway. We update this in our weekend reports at the end of every month, using a chart and narrative format.

 

There have only been two signals since 1997, so this tool is useful for long-term investors, as it filters out the noise of up and down corrections of significance in favor of the primary trend. It did give an early warning in 1999 and early 2000 as the two measures were nearly identical for several months. This chart is useful for our Conservative Balanced Investment Portfolio since once we get a new signal, we can rely upon that signal for years. Further, it tells us which direction surprises are likely to occur, so when playing speculative options or futures, we will know the direction where a surprise trend turn is most likely to occur. 

 

 

8.      The 40 Month/20 Month Primary Trend Confirming Indicator

 

This is a comparison of the position of the 20 Month Moving average

versus the 40 month. What is nice about this indicator, is that once we get this indicator’s confirming “buy” or “sell,” we can look forward with high confidence to a large chunk of the primary trend’s move still being ahead of us.

 

For example, the 20 month MA crossed below the 40 month MA in February 2002, with the Dow Industrials at 10,106. From that “sell” signal point, the DJIA dropped 2,909 points, or 28.8 percent. That suggested a great spot to purchase Leaps Put options.

 

Then, going the other way, the 20 month MA rose above the 40 month MA in August 2004, at DJIA 10,174. The Dow Industrials since rose 2,447 points, or 24.0 percent. Here, your strategy could have been to either play long-term leaps call options, or to simply go long in the cash market and stay there, in other words, increase your long investment position.

 

There were no false crossovers or cross-unders with this confirming 20 Month/40 Month MA measure. Once it turned negative, the trend was down. Once it went positive, the trend was up. We present this analysis, in grahic format, at the end of each month in our expanded weekend market newsletters.

 

 

9.      The Demand Power / Supply Pressure Indicator

 

                       We’ve been measuring and reporting Demand Power and Supply

                       Pressure for years. We present them at the end of each trading day

                       graphically, and highlight our Demand Power/Supply Pressure buy and

                       sell, entry and exit signal system on those charts. Aside from the

                       astonishing correlation, the most exciting aspect about this system is the

                       guidance it provides on exiting an established position. Trading these signals

                       with the primary trend will likely produce greater returns than trading these

                       signals against the primary trend, a critical application criteria.

 

                       The theory of this amazing indicator is as follows: What is Demand Power

                       and Supply Pressure? They are our proprietary measures of buying interest

                       and selling interest. They are the raw components of our highly correlative

                       Purchasing Power Indicator. Like most of our key trend-finder indicators,

                       they are momentum measures. We believe the best tool to find a trend

                       of 2 percent or more is by following momentum measures. By breaking

                      down the Purchasing Power Indicator into its two key components, we

                      end up with a trading system that identifies 1) when we can enter on the long

                      side (buy the market, with either cash market purchases, futures, or call

                      options), 2) when we should exit that long position, 3) when we can enter on

                      the short side (play the market to decline with an inverse fund, or futures, or

                      put options), and 4) when it would be wise to close that short position. There

                      are never guarantees in this business, and this indicator is no exception,

                      however our odds are pretty good with this system.

 

                      One thing we really like about this trading system is that it will very rarely leave

                      us holding a short position when we shouldn’t. A lot of money has been lost

                      on the short side due to increasing liquidity and market intervention, taking

                      advantage of shorts, causing surprise rallies, or sustaining rallies indefinitely. By

                      focusing on buying interest and selling interest momentum, we can know that

                      even though an Elliott Wave labeling is calling for a top, one may not

                      be coming quite yet if Demand Power is dominating Supply Pressure,

                      guiding us to hold off from going short too soon.

 

                     So how do we use this market timing trading system? It is simple. The blue

                     line represents Demand Power. The red line represents Supply

                     Pressure. Simply, whenever the Blue line crosses above the red line, the odds

                     are very high that a rising trend is starting. So we enter a long position on the

                     date the Blue crosses over the red line. If we want to be conservative, we can

                     wait for a decisive crossing before taking a position. Maybe that would be

                     where Demand Power rises more than 10 points above the Supply Pressure

                     reading. Remember, we present these measures every night as part of our daily

                     market updates, and include them on page 2 of each report.

 

                    Once the Blue line rises above the red line, we hold our long position. We can

                    always exit at any time, especially if we have a profit we are satisfied

                    with. However if we want to try and get the maximum out of a move, we can

                    hold that position until the blue line drops down and intersects the red

                    line again. That would be the latest time we would close the long position.

                    Most of the time, the trend has not reversed when these two lines intersect, or if

                    it has reversed, only a small portion of the reversal has taken place. Sometimes

                    the intersection does not mean a new reversal of trend, but merely means a

                    sideways move is coming, thus if we are holding options (where sideways

                    moves are death), we can get out before too much time decay steals from a

                    paper profit.

 

                    Should the red line (supply pressure) rise decisively above the blue line,

                    we would consider that an entry signal to take a short position, if so

                    inclined. We could buy put options at that point. We would then hold that

                    position until the red line returns to intersect again with the Blue (Demand

                    Power), at which time we want to get out of our short position if we haven’t

                    taken a profit and gotten out by then.

                                   

                          Another interesting dynamic of this market-timing trading system is that if the

                   Demand Power line (Blue) is above the Supply Pressure line (red), its measure

                   can actually be dropping, yet the rising trend it forecast will continue. The trend

                   usually stops when the two lines intersect, and is not correlative to whether

                   Demand Power or Supply pressure is rising or falling, per se. In other words,

                   once Demand Power rises above Supply Pressure, even if the margin is

                   shrinking, the trend will still likely rise. Conversely, once Supply Pressure is

                   above Demand Power, even if it starts declining, the trend will likely remain

                   down until the two lines intersect. Not always, but most of the time.

 

                   Why? Because if Supply Pressure and Demand Power are both declining,

                    however Supply Pressure is dropping more than Demand Power is falling, then

                    prices will float higher. Same on the reverse. If Supply Pressure is falling, but

                    Demand Power is falling more steeply, prices will decline.

           

                    It is virtually impossible to catch a trend’s life expectancy without a

                    detailed analysis of Demand Power and Supply Pressure. We provide

                    this information. We have a formula that considers each day’s data, and

                    convert that to DP and SP measures. We consider price in these calculations,

                    but as or more importantly, we also consider other data, and the momentum

                    change of that data. In combination, these determine Demand and Supply on

                    any given day.

 

                    We present this chart on a regular basis in our newsletters, and hope you find

                    your market timing trading and investing strategies more profitable than ever

                    because of these indicators. However, this indicator is not trading advice, and

                    we recommend you consult with your financial advisor before entering any

                    transactions. It is simply one of may tools you and your advisor can incorporate

                    into your decision making process.

           

                   Again, as stated many times in the past, any body of technical work we present,

                   which is not one of our key trend-finder indicators, is simply background. We

                   do not trade off cycles, analogs, Elliott Wave analysis, patterns, moving

                   averages, or Dow Theory. We trade off our momentum key trend-finder

                   indicators of demand and supply (the Demand Power/Supply Pressure,

                   and Purchasing Power Indicators), and off of breadth momentum (the

                   30 day and 14 day Stochastic indicators, and the Advance/Decline Line

                   indicators).     

 

 

10. The DJIA Call/Put Ratio Indicator

 

11.  The Plunge Protection Team Intervention Risk Indicator (PPT Indicator)

 

12.  The Hindenburg Omen

 

      It is the alignment of several technical factors that measure the underlying condition of the stock market — specifically the NYSE — such that the probability that a stock market crash occurs is higher than normal, and the probability of a severe decline is quite high.  This Omen has appeared before all of the stock market crashes, or panic events, of the past 22 years.  All of them.  No panic sell-off occurred over the past 22 years without the presence of a Hindenburg Omen. Another way of looking at it is, without a confirmed Hindenburg Omen, we are pretty safe. But we have one as of June 22nd, 2007. The way Peter Eliades put it in his Daily Update, September 21, 2005 (Peter is well worth the read, believe me), “The rationale behind the indicator is that, under normal conditions, either a substantial number of stocks establish new annual highs or a large number set new lows — but not both.”  When both new highs and new lows are large, “it indicates the market is undergoing a period of extreme divergence — many stocks establishing new highs and many setting new lows as well. Such divergence is not usually conducive to future rising prices. A healthy market  requires some semblance of internal uniformity, and it doesn’t matter what direction that uniformity takes. Many new highs and very few lows is obviously bullish, but so is a great many new lows accompanied by few or no new highs. This is the condition that leads to important market bottoms.”

 

13.  Phi Mate Turn Date Analysis

 

      Within the body of cycles study, we cover what we call Fibonacci phi mate turn date analysis. It is important to understand that markets — and especially equity markets — seek order.  The order they seek often falls into neat, precise Fibonacci Ratio time and price intervals. What we have noted to often be true, is that price trend tops, bottoms, and reversals occur very often at precise Fibonacci time intervals with other turn dates.

 

         Before going further, for the benefit of new subscribers, here’s a thumbnail sketch of

         the mathematics of Fibonacci numbers and ratios, and why they might be integral to

         financial markets:

 

        While Fibonacci numbers and ratios have existed since the Creation, a 12th century

        mathematician, Leonardo Fibonacci, is largely credited with identifying the unique

        sequence and ratios, and their prevalence throughout nature.

 

        The sequence goes like this: It starts with the number 1 and then adds that number to

        itself to get the next number. It then takes those two numbers and adds them together to

        get the next number in sequence. Each number next in sequence is the sum of the prior

        two numbers in the sequence, ad infinitum. Thus the sequence looks like this:  1, 1, 2, 3,

        5, 8, 13, 21, 34, 55, 89, 144, 233, 377, etc…  The ratios between these numbers are

        unique in that each addend is either .382 or .618 of the sum.  For example, 13 plus 21

        equals 34.  21 is .618 of 34.  13 is .382 of 34.  .618 plus .382 equals a complete

        1.00.  This holds true for all pairs. These pairs are known as phi mates. The world

        around us is filled with these ratios and relationships. Robert R. Prechter, Jr.’s amazing

        book, The Wave Principle of Human Social Behavior and the New Science of

        Socionomics, New Classics Library, 2002, does a terrific job running down how

        Fibonacci numbers and ratios are everywhere throughout nature.  What is so amazing

        is that market price and time movements are also dominated by Fibonacci

        numbers and ratios.

 

       Several years ago, we took notice that when the Dow Industrials ended their two-

       decade Bull Market on January 14th 2000, something spectacular occurred. It

       was as if that date was to become one of the most meaningful in the history of the

       markets. What is so special about January 14th, 2000? Yes, the Dow Jones Industrial

       Average topped then in real dollar terms, but so what? Yes, it can be said that January

       14th, 2000 marked the official start of a Bear market. Again, what’s the big deal?

 

       Since this dramatic date, almost all market tops or bottoms of measurable

       significance have occurred precisely in a Fibonacci .618 to .382 ratio of trading

       days from either that starting date 1/14/00, or another top or bottom that has

       occurred since 1/14/2000, based upon closing balances. There were a few in the

       past two years that approximated .382 or .618 by hitting a Fib 3/8ths (.375) or Fib

       5/8ths (.615). This is astonishing!  A mathematical formula has been nearly 100

       percent correct in predicting market tops or bottoms in the Dow Industrials

       since the Bear began on January 14th, 2000! Each a Fibonacci ratio number of

       trading days from the Bear’s start and from another top or bottom since January 14th,

       2000. And the trend continues even after the Dow hit a new all-time nominal closing high

       on July 19th, 2007. In fact July 19th, 2007 was a phi mate turn date that led to a mini-

       crash in equities.

 

       Here is an example of what we are talking about. October 9th, 2002’s low for the

       Bear market came 687 trading days from the start of the Bear on January 14th 2000.

       This number of trading days happens to be essentially 61.8 percent of the number of

       trading days from 1/14/00 to a significant Bear market top, June 23, 2004’s top, which

       occurred 1,115 trading days from 1/14/00. The ratio 687 to 1,115 essentially

       equals .618 — phi. Here’s another example. September 6th, 2000’s top is 162 trading

       days from 1/14/00. September 21st, 2001’s bottom is 423 trading days from the start

       of the Bear, 1/14/00. The ratio of 162 to 423 is a Fibonacci 1.0 minus phi, or .382.

 

       Again, let me repeat, there is a either a .382 or .618 ratio relationship for nearly

       all tops or bottoms since January 14th, 2000 with another top or bottom since

       January 14th, 2000. What is fascinating is that in the early going, these Fibonacci phi

       ratios might be off a few thousandths of a percent here or there, but the further out from

       January 14th, 2000, generally the more precise the ratios were, hitting .382 or .618

       almost right on the nose. Over the past two years, due to the huge number of trading

       days from January 14th, there has been a few tenths of a percent variances from time to

        time, which isn’t much when you think about it. A log of phi mates is available in

        the archives inside issue no. 496, pages 5 and 6, chronicling the amazing Fibonacci

        pattern that earmarks the market moves since 2000 as something unusual.

 

14.  Elliott Wave Analysis

 

One of  the technical tools we use at www.technicalindicatorindex.com is Elliott Wave analysis.  Its founder, Ralph N. Elliott, was an accountant by trade, who in the 1930’s noted that stock market prices form repetitive patterns he called waves.  He became quite ill and took that bedridden opportunity to study the Dow Jones averages since 1896, the results of which he originated as the Elliott Wave Principles.  His body of work was expanded upon through the years by such noted technical analysts as A. Hamilton Bolton of the Bank Credit Analyst, A.J. Frost, Richard Russell, Robert Prechter, Glenn Neely, and Zoran Gayer.

 

Elliott Wave is a measure of mass human activity as applied most commonly to the financial markets — although evidence is being gathered by Robert R. Prechter, Jr. that the principle applies to socio patterns as well (see his book The Wave Principle of Human Social Behavior and the New Science of Socionomics, New Classics Library, 1999).  Elliott Wave confirms what God said through the writer of Ecclesiastes, “That which has been is that which will be, and that which has been done is that which will be done.”  The issue here is one of cycles, that all of nature repeats itself, which is especially true of the markets.  These repetitive patterns can be recognized, and to some degree of success, anticipated.

 

In a gross oversimplification, in a nutshell Elliott Wave analysis goes like this:  Markets reflect all information, and all knowledge available to man.  They have a language of their own, and communicate where they are going next.  Elliott Wave is one of many languages the markets use to tell us where they are headed next.  Market moves are not reactive to news announcements, but rather independent of news.  News comes as a result of the position of the Elliott Waves — the psychological state of man at that particular time.  How news is interpreted depends upon the wave.  If the wave formation indicates a Bullish move in progress, then bad news will be ignored or reacted to in a positive way, i.e.., markets will go up anyway.  And, if the wave pattern is Bearish, then good news will be ignored or reacted to negatively — markets will sell off.  Thus, it is helpful to investors if they are aware of the Elliott Wave position markets find themselves in, and which wave pattern is next expected to arrive.

 

Again, oversimplifying, and using the stock market as an example, in Elliott Wave analysis equity prices move up or down with the primary trend impulsively.  These impulsive (dramatic) moves come in stair-step fashion, five waves at a time.  Waves 1, 3, and 5 progress and waves 2 and 4 regress (or correct).  The total move in the direction of the primary trend progresses because the sum of waves 1, 3, and 5 exceeds the sum of waves 2 and 4.  Waves 1, 3, and 5 move in the direction of the primary trend, while waves 2 and 4 can either move in the opposite direction or sideways.

 

There are five-wave counts at a smaller degree inside each of waves 1, 3, and 5.  There are three-wave counts at smaller degree inside each wave 2 and 4.  The five-wave counts are marked by numbers, 1 through 5.  The three-wave counts are marked by letters, A-B-C.  Inside the sub-waves A and C are five-wave waves of even smaller degree.  Inside the B wave is a sub-wave set of three waves.  To recap, waves 1, 3, 5, A, and C are themselves made up of five-wave lower degree waves.  Waves 2, 4, and B are built from smaller degree three-wave patterns.  Waves 1, 3, 5, A, and C, push the direction of prices forward and waves 2, 4, and B correct or reverse the progress of the other waves. An exception is that if a wave 5 is occurring inside a Triangle, then it will have a three-wave subset.  Also, sometimes wave A will have a three-wave subset, not five, for example when part of a 3-3-5 Flat pattern. Triangles will have five sets of waves, each wave being made up of a subset of three waves.

 

Degrees of waves are distinguished based upon the time period they cover.  Very long-term degrees of waves could cover hundreds of years, such as the Grand Supercycle degree.  Very short-term degrees of waves might only cover a few weeks, or days.  Elliott Waves can even be broken down and identified intraday by hour or minute.

 

There are certain rules that must not be violated for an accurate Elliott Wave count.  There are three cardinal rules:  1) Wave 2, when it corrects wave 1, may never move prices beyond the starting point of wave 1.  2)  Wave 3 may never be the shortest wave.   3)  Wave 4 must never enter the price territory of the same degree wave 1.  If any of these rules are violated, then the Elliott Wave count is wrong.

 

In addition to rules, what is extremely helpful is knowing the different personalities of each wave.  Knowing personalities typical to each wave can sometimes clue us as to where we are in the count when it otherwise is unclear.  I’ll cover just a few that I’ve noticed.  1)  Wave 3’s are usually (not always) the most dramatic, most powerful, and extend the furthest. Usually. They usually show panic buying or selling where you see prices move almost vertical.  Or, if prices move over long periods of time without corrections, oftentimes it means we are in a wave three of some degree. It might be a wave three inside a higher degree wave 1, 3, 5, A, or C.  2) Ending Diagonal patterns (Rising Bearish or Declining Bullish Wedges are often seen in wave 5’s. These have a subset of five waves, each with its own subset of three waves. 3) Wave twos often reverse so sharply, and so much of the previous wave 1’s move, that it confuses the Elliottician as to whether in fact the trend has really changed or not.  Retracements of as much as 61.8 percent or 78.6 percent are not uncommon in wave twos.  4)  Wave fours are often lackluster, more sideways or choppy than twos (not always).  Often wave fours will form triangle patterns.  Wave B’s are often similar to fours.  5)  When wave three’s extend, oftentimes waves one and five will tend to equality or some Fibonacci ratio of each other that lends a sense of proportionality to the wave pattern such that waves one and five look somewhat similar.  6) If wave 2 retraced (zigzagged) a measurable percentage of wave 1 — was not sideways — then wave four will likely be more of a flat or sideways move and vice versa (the principle of alteration). 7) After a sharp extended rally, which probably was a wave three, it is not uncommon for a sharp reversal to be the first of a five-wave sideways triangle that fakes out Elliotticians, giving the false illusion of a wave one reversal, but in fact is the “a” wave in the opposite direction of an a-b-c-d-e triangle, a corrective wave four sideways pattern, with another impulse wave five to follow in the same direction as the preceding larger degree extended wave.

           

Once we’ve seen a 1-2-3-4-5 sequence that looks complete, next we can expect a reversal of that five-wave impulse wave’s progress in the form of an A-B-C correction or partial reversal.  Once both of these sequences have completed together, for example, once a 1-up, 2-down, 3-up, 4-down, 5-up, A-down, B-up, C-down sequence has completed, then we can expect this to repeat itself.

 

For a terrific book to study the elements of Elliott Wave, I suggest Elliott Wave Principle by Robert R. Prechter, Jr. and A. J. Frost, New Classics Library, 1978-2001.  For a more advanced book on Elliott Wave, I suggest Mastering Elliott Wave, by Glenn Neely with Eric Hall, Windsor Books, 1990.

 

We have long-term Elliott Wave charts in issue no. 553, April 5th, 2007, available in the archives at www.technicalindicatorindex.com should you wish to see those big picture Elliott Wave annotated charts.

           

 

 

 

15.  Pattern Analysis

 

16.  10 Day Average Advance Decline Line/Crossover Indicator

 

17.  The Secondary Trend Indicator

         This indicator is a comination of eight key indicators we follow every day,

         and we score a plus one or minus one, or zero for each day for each

         indicator, depending upon if the indicator was bullish, bearish, or neutral that

         day. The total is then added to an accumulation figure, and then the result is

         compared to a moving average. The difference is the STI reading for that

         night. Above zero is bullish, and below zero is bearish.

 

18.  Cycle Analysis

  

19.  McClellan Oscillator

 

20.  Summation Index

 

21.  Panic Buying/Selling – 90 Percent Days

 

Whenever on any given day, we have both upside points and upside volume both above 90 percent of total points and total volume for that day in the New York Stock Exchange, that is considered a 90 percent up day, which is evidence of buying panic. They are usually associated with a surprise out of the blue strong rally at the open, which forces shorts (those most pessimistic about the markets, who have entered contracts to sell securities in the future at a locked in price without owning the stock) to cover – to buy the stock they do not own, but have agreed to deliver in the future at today’s or yesterday’s prices. If prices rally, they risk having to buy the unowned stock at a price greater than they have agreed to sell it at. Shorts have taken out a bet that the stock market will decline. In other words, 90 percent up days are helped to a great extent by pessimists forced to buy stock. They panic.

 

90 Percent Down days are evidence of selling panic. If they occur in clusters after extended rallies, they are signals that a significant decline is coming or underway. If they occur after an extended period of decline, they are signaling the end to that significant decline, and suggest a nice lengthy rally is near.

 

22. VIX

 

      VIX is the ticker symbol for the Chicago Board Options Exchange Market Volatility Index, a popular measure of the implied volatility of S&P 500 index options. Often referred to as the fear index or the fear gauge, it represents one measure of the market's expectation of stock market volatility over the next 30 day period. The VIX Index was introduced by Prof. Robert Whaley in 1993 while he was at Duke University.

        Implied volatility is the amount of change that option traders foresee during the 30-   day period ahead. When traders become fearful, they foresee volatility rising, which is why, when the VIX rises, it's generally considered an indication of a falling market ahead. Falling markets are usually associated with rising volatility.

         From 2003 to 2007 the VIX headed down as volatility turned lower. Starting in  2007, option traders foresaw volatility heading higher, and by the peak in 2009 the VIX had rocketed to a high of almost 80 as the vicious bear market set in.

          From there, the VIX declined to a low in late-2010, only to be followed by a sharp rise to 40 in March of 2010. The VIX then sank to a low of just above 15 during February-March of 2010. When the VIX has wide swings in a relatively short period of time, say a month or two, it suggests a nervous market. If the VIX falls below 20, it means options traders don't see trouble ahead.

            The VIX should not be seen as an infallible forecaster, as it tends to move contemporaneously with the stock market. It can forecast with some success if it closes above its two standard deviation Bollinger Band, them close back under that level. That would be a short-term buy signal. If it closes below its lower 2 standard deviation Bollinger Band, and then closes back above that bottom boundary, it triggers a short-term sell signal. These signals have had some success in forecasting a new short-term trend in stocks.

  

23. Short-covering Rally

 

This is a rally primarily fueled by pessimists who feel compelled to buy the very market that they expect, and have placed bets on declining. Short-traders have agreed to sell a security at a contracted price that they do not yet own. They are expecting that the price of the security they are shorting will decline, thus they can buy it in the future at the lower price, and sell it at the higher contracted price based upon recent past prices. When the market unexpectedly has a sharp rally, often starting at the open of trading, this brings fear to shorts that the rally could go higher. Wanting to eliminate the risk of having to buy at a price far above where they agreed to sell it, wanting to minimize losses, they join in the buying. The higher prices go, the more shorts join in the buying. Oftentimes, the Plunge Protection Team will start these rallies in the hopes that shorts will be forced to cover, in order to support market prices from declining, or try and change the market psychology if the PPT feels there is risk of a severe decline. Sometimes they will initiate short-covering rallies for political purposes, in order to help the incumbent party that is sympathetic to Wall Street. Short-covering rallies also reduce the risk of loss from derivatives underwriters, who are mostly Wall Street firms. It is plain and simple market manipulation by the PPT (a.k.a. Working Group), but there are no minutes of any meetings. Their market manipulative actions are secret, their meetings are secret. Short covering rallies are evidenced by buying panics where upside volume and upside points are greater than 90 percent for that day. The PPT hopes that short-covering rallies lead to other buying by funds, which eventually catches the interest of amateurs who join in the buying about the time the rally has peaked. Oftentimes, we will see evidence that a rally was mostly short-covering by put options exceeding call options on a sharp rally day. This means those pessimists who were forced to buy, simultaneously added new short positions as the market rose during the day. They remain pessimistic.