Posted by barkand on February 23, 2011 under Bollinger bands | 
Well that didn’t take long.
Over the weekend, we noted that the price action for X was looking bearish and wondered whether support at $60 would be strong enough to hold. That lasted about 2 hours. On this 5-minute chart of yesterday’s trading, we see that prices bouced off $60 early in the morning. But a second test later in the morning failed.
Yes, the market as a whole was weak. But the 7.4% fall for X was much worse than the average. At this point we anticipate X at least tagging the lower Bollinger band (on the daily chart), currently in the mid-50s.
Posted by barkand on February 20, 2011 under Bollinger bands, Candlestick charts, Cartoons, xattascope |
Not long ago, we referenced The Simpsons in our analysis of food manufacturing and a food retailer. So today we turn to another Matt Groening creation, Futurama.
Leela: You’re blackmailing me?
Bender: Blackmail is such an ugly word. I prefer extortion. The X makes it sound cool!
Today we look at U.S. Steel, with its very cool ticker symbol – X. Our story begins in the autumn of 2010. In late October, volatility subsided resulting in a squeezing of the Bollinger bands. The width of the bands was the smallest in more than 6 months and this development frequently leads to big moves in prices. As often happens, X first went the “wrong” way, then turned around for a powerful 30% advance over the next two months.
Prices then moved sideways for six weeks, and then on February 15 gapped up above resistance at $61. Unfortunately, the price action that day also formed a shooting star, a bearish sign. Two days later, prices formed a hanging man which, as you can guess, is also a bearish sign. The hanging man was confirmed the next day, with a close well below the previous day’s close.
But is it really so bad? Let’s take a closer look at X under the xattascope. On the hourly chart below, we see that on the gap day the stock was actually heavily sold after its initial burst in the morning. And then on the day that the hanging man was formed, there was a feeble, low volume rally.
So, yes, we feel X is headed for a short-term downtrend. Of course QE2 is keeping everything afloat, so maybe X finds support around $60 before eventually climbing higher. But if the price action around $60 is not favorable, there will be lower prices still to come.
Posted by barkand on February 6, 2011 under Uncategorized, Volatility |
While the S&P500($SPX) continues its almost daily march to new highs, RSI is giving us a stern warning of things to come. RSI had been making a series of higher highs from the beginning of December 2010 through the middle of January 2011. But since then the indicator has been making a series of lower highs. This divergence is considered by many to be a signal that the current trend is coming to an end, and is likely to reverse.
But what is the Relative Strength Index anyway? It isn’t relative strength. Let’s take a look at the formula.
RSI = 100 – (100/(1 + RS))
A high value of RS gives us a high value of RSI. And a lower value of RS then generates a low value of RSI. So what is this “RS”, then?
RS = (total “up” points / n) / (total “down” points / n) —- typically n = 14
So RS is a way of measuring volatility in the market. Let’s consider two scenarios, where the net point gain in each is 15 (which happens to be the case with SPX over the past 14 days).
Scenario 1: 20 up points, 5 down points —-> RS = 4 and RSI = 80
Scenario 2: 50 up points, 35 down points —-> RS = 1.428 and RSI = 58.8
The first scenario can be described as a quiet drift higher and produces a high value for RSI – some would call it “overbought”. In the second scenario there is perhaps more confusion. Or it could be that there is relatively high interest in the market and some are using the opportunity to exit. This is why low values of RSI are considered so dangerous when the market is making new highs. It is also a good example of why it is important to consider other information, rather than make decisions based on one indicator.
Posted by barkand on February 2, 2011 under Cartoons, Correlation, Relative strength |
On one episode of The Simpsons, Homer is delighted by pulling the beer taps in Moe’s bar and watching the beer pour out on to the floor.
Moe : Hey, I gotta pay for that!
Homer : No, Moe, you’ve got it all wrong. People buy beer from you.
Today’s post is not about beer, but beef. On the occasion of the DJIA closing above 12000, we will first look at McDonald’s(MCD).
McDonald’s had been a leading component of the DJIA, rising 30% above and beyond its pre-crisis highs from the second half of 2008. Prices reached a peak in the first week of December, about a month after competitor YUM [which we wrote about here]. But the stock has broken down badly since then, with extremely heavy selling volume since the first of the year.
Meanwhile, MOO (also known as the Market Vectors Agribusiness ETF), has continued its cattle drive to new highs. For most of the last 6 months MCD and MOO had been highly correlated. Really, with all the cash being tossed out of the helicopter, many securities in many different markets have been going up in a straight line. Maybe this is but one sign that the market is beginning to be more discriminating about picking winners and losers.
