Professor’s Comments June 23, 2016
Posted by OMS at June 23rd, 2016
The Dow fell 50 points, closing at 17,781. Volume was moderate, coming in at 90 percent of its 10-day average. There were 120 new highs and 16 new lows.
The UK will vote on Brexit today. The last few polls showed the ‘Stay’ vote holding a small lead, with about 10 percent of the voters undecided. If the ‘Stay’ voters win the day, it’s likely that markets will stage a nice relief rally, with the Dow retesting the 18,186 level and likely pushing a few points higher. On the other hand, if the ‘Leave’ side wins, tomorrow could be a Black Friday.
So with the polls so close on this important issue, I’m just going to remain on the sidelines.
Instead of talking about the markets today, I thought it would be a good time to talk about the Volume Trend Indicator (VTI) I have been developing and testing.
I received an email from Curt H. yesterday asking if I could add the VTI to the cockpit. Actually, I was looking for a way to help you evaluate this indicator, so I asked Dave if he could add it to the bottom of the cockpit as a Green-Red indicator.
It’s there now.
However, I’m not sure if it’s going to stay on the cockpit in its current form. I say this because the VTI is a very complex indicator that does many things.
For example, when it changes direction, it is a very good short-term trading signal. I use it in combination with the Honor Roll.
When the VTI changed direction on 20 June, I traded BP and CLR for nice scalp gains the following day. Both stocks continued higher into yesterday until late day profit taking from traders concerned about Brexit pared those gains.
But the indicator also has several other uses. When it moves from below to above 50, it tells me the market has a positive bias. Last night the indicator moved from below 50 to close with a reading of 50.92, so the Dow should respond positively today.
If the indicator moves above the 70 level, it moves into the Trend Mode. This is a very important level as it impacts my decision to start holding stocks or not. If the VTI is not in the Trend Mode and the 2-period RSI is overbought, stocks tend to pullback over the next few days.
So as you can see, modifying the software to present all of this information is a challenge. This is why I’m only going to show it as a Red-Green indicator on the cockpit for now. Think of it as a short-term trading tool.
Again, what I’m looking for is a change in direction signaled by a color change. When this happens, I will look to trade stocks from the Honor Roll in the direction of the color change.
I’ve found that Honor Roll stocks traded the day after a VTI change have performed extremely well as scalp trades. Actually, it is not unusual for them to continue to be good trades for several days after the VTI change. But you can’t get greedy.
The reason they tend to perform well is because Emeritus is a Trend Algorithm. So when the VTI changes direction signaling a short-term change in direction of the overall market, stocks identified by Emeritus for the Honor Roll usually lead the way.
Then once I’m in a trade, IF the VTI enters the Trend Mode, I take some profits and let the rest ride.
Anyhow, you might want to watch how the VTI performs with Honor Roll stocks in the days ahead. I’m expecting the market to go through a very volatile period after today.
The sideways trading that has been taking place for the past two months has caused the Bollinger Bands to become pretty narrow around the Dow. So it’s likely the Brexit vote will trigger a large Band Squeeze move either way. Trade cautiously and protect yourself.
That’s what I’m doing,
h
Market Signals for
06-23-2016
DMI (DIA) | NEG |
DMI (QQQ) | NEG |
COACH (DIA) | NEG |
COACH (QQQ) | NEG |
A/D OSC | |
DEANs LIST | POS |
THE TIDE | NEU |
SUM IND | NEG |
VTI | POS |
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