Traders Corner   24 comments

The McClellan Summation Index (long-term) and the weekly RSI are both a smidgen from overbought. The McClellan Oscillator is getting closer to overbought, at 42 (60 is overbought), even as the daily RSI is also nearing overbought. In the near future, possibly as soon as the next day or two, we are going to have either an extended period of flat trading, or a correction. However, with the U.S. Employment Report due in 2 days, don’t be surprised if the markets flatten out either today or tomorrow or both. If so, this could help relieve some of the nearly overbought technicals.

The S&P 500 levels to watch today:

UPSIDE: 1876 (March 4th’s high and the all-time high), and 1890 (top of the Bollinger Bands).
LAST CLOSE: 1873.
DOWNSIDE: 1867 (February’s high), 1857 (March 3rd’s high), 1849-1850 (March 4th’s low and January’s high and December’s high), 1834 (March 3rd’s low), 1825 (20 day moving average), 1823 (50 day moving average), 1796 (100 day moving average), 1775 (October’s high), 1770 (January’s low), 1767 (December’s low), 1759 (bottom of the Bollinger Bands), 1757 (150 day moving average), 1745 (November’s low), 1737 (February’s low), and 1729 (September’s high and the 200 day moving average).

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24 responses to “Traders Corner

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  1. Ed – every day you post stuff about the McClellan Index and RSIs etc etc. I always totally ignore it as I have a very low level of confidence in technical indicators. Have you ever thought about doing a back test study to see if they have shown any predictive ability, either short term or longer term? It would be interesting (to me) to see when you say they indicate flat trading, or a correction or oversold etc – does that make it more likely or is it (as I believe) more of a random walk? If you do not do it, I might take a go at it when I am recovering from ACL surgery.

    • Marshall,
      The McClellan Oscillator is pretty solid from whatI’ve seen since I started looking at it. On the other hand, the McClellan Summation Index is more of a ceiling or floor is about to hit the market. The bad part about the MSI is that it isn’t as definitive as the MO. Regardless, with either one, I like to get confirmation from other technicals.

      The daily RSI is pretty easy to see for yourself over time. Unlike the Williams %R, the daily RSI doesn’t normally stay above overbought or below oversold for long. The weekly RSI isn’t nearly as useful as the daily RSI.

      • If something was a very excellent predictor and easy to use and widely available, would it then get over used and not be a good predictor any more? Just playing devils advocate.

      • Marshall,
        While I would normally agree with you, I think the problem with technicals like MO and RSI is you have to watch them over time, then they are good for a day. How many people play for one day out of many months? Most people concentrate on either long-term investing or daytrading, with few people patiently looking for a quick buck opportunity that only pops up occasionally.

      • Marshall, on my lunch break I found an excel on stockcharts.com for calculating RSI and then added to it, to backtest trading based on the weekly rsi. Used S&P index from 1970.

        Average Results:
        When rsi closes below 30(oversold) / 70(overbought)
        1 week after +0.005% / +0.005%
        4 weeks after: +0.056% / +0.053%
        8 weeks after: +0.08% / +0.131%

        If you want the excel to play around with, Ed can give you my email.

      • Dang it. Need to use excel more often. I was averaging thousands of zeros with the valid data points. oops. Correct averages shown here.
        When rsi closes below 30(oversold) / 70(overbought)
        1 week after: 0.29% / 0.04%
        4 weeks after: 3.29% / 0.49%
        8 weeks after: 4.67% / 1.21%

        Should note there were only 40 weekly closes below rsi 30 compared to almost 250 above 70

      • m – thanks for the note. You are clearly better off buying when oversold versus overbought. But it does not seem clear that it pays to short when it is over-bought. It makes sense as the overall bias over time is for the market to go up.

      • No problem. When I have some free time, I’ll run some numbers with the daily rsi.

      • m,
        I should note I only play short on RSI a day after it hits overbought, and vice versa.

      • Ed, I’ll run the numbers with the daily. A day after, 2 days after, a week after.

  2. Marshall, your RIOM is having a nice start today, do you have a target for it?

    • BC – RIOM is intended to be a longer term hold as I wanted some exposure to gold etc – and RIOM seems like a decent value to me. My view is they are worth close to $4 over next 18 months. But it is very very difficult to value these miners as the price of gold can be so volatile.

  3. No weakness in the S&P yet. No where close to overbought.

  4. I see where Smith & Wesson is shooting up today!

  5. Looks like silver is stuck. No way to know where it will go from here. I’m in no rush to buy.

  6. GTIV is down another 6% today. It is starting to look extremely tempting at 9.14. I will try and do a little digging over lunch.

    • I snuck a quick peek at GTIV. Not going to buy, too much concern over their balance sheet. They are very leveraged with debt, and a lot of their assets are not tangible.

  7. Has anyone ever looked at Mxwl? Love their technology but not sure of their ability to hang around long enough to turn it into $$$s

    • Jeff,
      The fact their quarterly revenue fell 12% yoy in the last quarter is a bad sign. Their margins aren’t very big either. On top of that, their stock looks overpriced. If you buy MXWL, you’re buying it for growth, not value. And right now, they aren’t growing.

    • I wonder why they got a 20% pop today?

    • Looks like Piper doubled their price target to $22? I’m going to see if I can find any of their comments.

  8. what is up with AVG? it just started shooting up. up 5% now.

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