Other Volume Indicators & Trend and Momentum Review (Lectures 1-5)

Transcription

1 College Level Introduction to Technical Analysis Other Volume Indicators & Trend and Momentum Review (Lectures 1-5) Lecture 6 Objectives l Total Volume l On-Balance Volume l Using Volume Indicators l Tick Volume and Money Flow l Upside-Downside Volume and The Arms Index l Turnover l Open Interest This lecture series is produced by the Market Technicians Association Educational Foundation based on the detailed class notes of Charles D. Kirkpatrick II, CMT Copyright All rights are reserved. M a r k e t T e c h n i c i a n s A s s o c i at i o n E d u c at i o n a l F o u n d a t i o n Identifying and funding educational programs in the field of Technical Analysis since 1993 MTA Educational Foundation Post Office Box Cambridge, MA / Fax: 617/ info@mtaef.org Reading Master Textbook Technical Analysis: The Complete Resource for Financial Market Technicians Charles D. Kirkpatrick and Julie R. Dahlquist Chapters 18; pp Additional Reading Techncial Analysis of the Financial Markets Murphy, John, pages 49-98, , Technical Analysis of Stock Trends, 7th Edition Edwards, Robert & Magee, John, pages Technical Analysis Explained Pring, Martin, pages ,

2 Chart 1 No Divergence (IBM - Daily Volume) IBM - Daily Chart 2 Climactic Low (IBM - Weekly Volume) IBM - Weekly Chart 3 Breakout Confirmation (IBM - Monthly Vol.) IBM - Monthly Chart 4 IBM - Ten-Minute Volume IBM - 10 minute Total Volume Analyzed using one time period, i.e., one week, one day, one hour, one 10- minute period, etc. (Charts 1-4) Bullish Volume Divergence 10-Day Moving Average of Volume Uptrend Volume Confirmation Positive Volume Confirmation (Chart 5) Analyzed using moving averages. Volume tends to mirror price action. In a healthy uptrend, volume tends to expand with rising prices and contract with declining prices. High volume with no price progress after an advance is usually bearish. High volume with no price weakness after a decline is usually bullish. 50-day Moving Average of Volume Expanding volume confirms rising prices Diminishing volume in an uptrend is often bearish. (Chart 6) Rising volume in a downtrend is often bearish. (Chart 7) Total volume can be used to confirm a price trend or to question a price trend. Positive Volume Confirmation Uptrend Uptrend broken Negative Volume Divergence (Chart 8) Volume Confirmation (Chart 9) On-Balance Volume (Market Concept) (Charts 10-12) Net upside volume, i.e., upside volume minus downside volume (a proxy for net demand). Cumulative volume, as normally associated with Joseph Granville. Total volume is assigned a plus or minus depending on the price change for the time period, i.e., daily on-balance volume would be considered positive if the stock (or index, or anything else) had a positive change in price for that day. Positive divergence to falling prices. Negative divergence to rising prices. Other Volume Indicators Lecture 6, page 2

3 Chart 5 Positive Volume Confirmation Royal Gold - Daily Chart 6 Positive Volume Divergence on the Test Intel Corp. - Daily Intel - Daily Chart 7 Negative Volume Divergence Pepsico - Daily Pepsico - Daily Uptrend Broken Chart 8 Negative Volume Divergence Ryland Group - Daily Using Volume Indicators Total volume represented as bars at the bottom of a price chart. Using turnover (and volume) to confirm (or not) price trends. Upside and downside volume to measure: Overbought and oversold conditions. Intensity of buying power and selling pressure. On-balance-volume: looking for divergences and confirmations to price action. Using money flow volume to detect accumulation and distribution. Non-blocks. Not distorted by large trades. Block. Can be distorted by large trades. Using Money Flow to detect accumulation and distribution trends. Examples: Sideways price action and rising money flow, i.e., positive divergence. Sideways price action and falling money flow, i.e., negative divergence. Rising prices and rising money flow, i.e., confirmation of uptrend.(chart 13) Rising prices and falling money flow, i.e., negative divergence. (Chart 14) Falling prices and falling money flow, i.e., confirmation of downtrend. Falling prices and rising money flow, i.e., positive divergence. Tick Volume and Money Flow (Charts 13-14) Defined as volume per trade. If the trade is at a higher price than the previous trade (or, alternatively, higher than the last different price), the tick volume is considered positive. If the trade is at a lower price than the previous trade (or alternatively, lower than the last different price), the tick volume is considered negative. Net tick volume is uptick volume minus downtick volume. A kin to tick volume. The tick volume is multiplied by the price of the trade to arrive at money flow. On-Balance Volume Divergence followed by price drop Negative On-Balance Volume Divergence Positive On-Balance Volume Divergence Other Volume Indicators Lecture 6, page 3

4 Chart 9 Volume Confirmation of Downtrend Toll Brothers - Daily Chart 10 On-Balance Volume Confirmation S&P Daily S&P Daily Positive Divergence Upside-Downside Volume (Market Concept) Upside volume (a proxy for total demand) is defined as the total volume in advancing stocks, usually associated with one day s activity. (Chart 15) Downside volume (a proxy for total supply) is defined as the total volume in declining stocks, usually associated with one day s activity. (Charts 16) Net Volume: Upside volume (a proxy for net demand) is defined as the total volume of advancing minus declining stocks. (Charts 17) The Arms Index The Arms Index (after Dick Arms, who popularized the notion is also known as The Trading Index and is a market indicator) is defined as the average volume in declining stocks divided by the average volume in advancing stocks. The Arms Index trends to measure the impact of the high volume leaders on the market as a whole. The Arms Index high readings are bearish; sustained high readings indicate an oversold market. The Arms Index low readings are bullish; sustained low readings indicate an overbought market. (Charts 18- Chart 11 Positive On-Balance Volume Divergence Dell - Daily Dell - Daily Chart 12 Negative On-Balance Volume Divergence Amazon - Daily Amazon - Daily Divergence followed by price drop Other Volume Indicators Lecture 6, page 4

5 Chart 13 Money Flow Confirmation of Price Trend Microsoft - Daily Chart 17 Net Volume: NYSE Upside Volume minus Downside Volume Chart 20 NYSE Monthly Volume and Turnover at at Annual Rate Chart 14 Negative Divergence to Price Nabors - Price/Money Flow Nabors - Daily Chart 18 DJIA and Arms Index (TRIN) Chart 21 Open Interest Copper Futures December 2005 Contract Price Open Interest Money Flow Volume Chart 15 NYSE 10-Day Upside Volume Chart 19 S&P 500 and Arms Index (TRIN) Chart 16 NYSE 10-Day Downside Volume Other Volume Indicators Lecture 6, page 5