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By Ike Iossif
All Rights Reserved
(The Indicators explained
below are the ones we display in our daily & weekly analysis)
10, 20 and 50 day
Summation Indexes
Our indicators are designed to
"gauge" simultaneously three different areas of the market :
1) Trend
2) Sentiment
3) Momentum
We measure these three areas of
the market in several time frames, we have found that the 10, 20 and 50 day time
frames give us the best indications with regards to the immediate, short and
intermediate condition/direction of the market. Each indicator is a
"summation" of trend, sentiment and momentum oscillators for the same
time frame. For example, the "10 Day Summation Index" is the sum of
our 10 day momentum, 10 day trend and 10 day sentiment oscillators, all put in
one. The formula can be summarized as follows:
10 Day
Summation Index = aT10+bM10-cS10
a, b, c are the weight factors
in the equation, and T, M and S stand for Trend, Momentum and Sentiment
oscillators.
Therefore, when you look at any of these three
indicators, what you are looking at is a "combined snapshot" of the
condition of the market in terms of trend, momentum and sentiment. These
Summation Indexes give their best signals when used as a confirming, or,
non-confirming indicator. We want to see these indicators moving in the same
direction as the market itself, and with the same magnitude as the market
itself. For example, if the market is moving higher, but the Summation Indexes
are not, then we have a "negative divergence" In our methodology, such
divergence would cause our "risk" premium to move higher.
Negative/positive divergences only by the 10 day Index are
"first alert signs" and indicate a 32% probability of a change in the
market's current direction. Negative/positive divergences by both
the 10 and 20 day Indexes, indicate a 66% probability of a change in the
market's current direction. Negative/positive divergences simultaneously
by all three Indexes, indicate an 87% probability of a change in
the market's current direction. (These three indicators are shown
every day on page 3 of ChartReview )
On page 3a of of ChartReview, we examine
three other indicators.
1) The
"Momentum Summation Index" is a pure price
momentum indicator, made up of the sum of 5 individual price momentum indicators
for 5 different time periods: 5 day, 10 day, 15 day, 20 day and 30 day. The
formula can be summarized as follows:
MSI
= aM5+bM10+cM15+dM20+eM30-f
a, b, c, d and e, are the
weight factors in the equation, and M stand for momentum.
When examining the MSI,
we look at two different things: a) is it above, or, below zero? b) is it
confirming, or, not confirming the price action? This indicator
tends to give intermediate term signals because the longer term momentum
indicators in the above equation carry higher weight. If it falls below
zero -after a period of negative divergence- then we can safely conclude
that "momentum" favors lower prices. If it breaks above zero
-after a period of positive divergence- we can safely conclude that
"momentum" favors higher prices.
2) The Summation of
25 indicators Index, is made up of all 25 indicators that we use,
but is not the sum of them, some have positive factors in the equation, while
some other have negative factors.
The formula can be summarized
as follows:
SI25
= a1I1+...+a15I15-
...- a18I18-...-a25I25
Where a1...a25
are weight factors,
and I1...I25
are all
the different indicators that we follow (trend, momentum,
sentiment, short term interest rates, US dollar and Gold)
When examining the SI25, we
look at two different things: a) is it above, or, below zero? b) is it
confirming, or, not confirming the price action? This indicator
provides a very broad picture of the market. If it falls below zero -after
a period of negative divergence- then we can conclude that the
overall condition favors lower prices. If it breaks above zero
-after a period of positive divergence- we can conclude that the overall
condition favors higher prices.
3)
The 10 day Buy/Sell Equilibrium Index,
measures whether the "pressure" is on the buy side, or, on the
sell side. The key thing with this indicator is divergence.
If this indicator is not confirming the price action, then an abrupt
change can take place at any time. The 10 day BSE, and the 30 day BSE
(which we show in our newsletter) carry considerable weight in our
forecasting model.
We highly suggest you also
read the tutorial on "Positive/Negative
Divergences.
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