Chart of the Day Archive

A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS V. WILDER’S RSI, PART 1

Jeff

Published: 2012/03/13Posted in: Chart of the Day, Stocks, Technical Analysis, Top Level

J. Welles Wilder, Jr. is one of the most influential figures in modern technical analysis. He developed several popular technical indicators. Among the most popular is his RSI, or Relative Strength Index. Calculation of RSI is simple:

From price series $A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS V. WILDERS RSI, PART 1$ of size $A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS V. WILDERS RSI, PART 1$ , calculate the price change series $A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS V. WILDERS RSI, PART 1$ of size $A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS V. WILDERS RSI, PART 1$ s.t.:

$A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS V. WILDERS RSI, PART 1$

From $A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS V. WILDERS RSI, PART 1$ , calculate two series of size , $A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS V. WILDERS RSI, PART 1$ (for gains) and $A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS V. WILDERS RSI, PART 1$ (for losses) s.t.:

$A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS V. WILDERS RSI, PART 1$

and

$A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS V. WILDERS RSI, PART 1$

For $A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS V. WILDERS RSI, PART 1$ and $A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS V. WILDERS RSI, PART 1$ , we can calculate the Wilder’s Moving Averages, $A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS V. WILDERS RSI, PART 1$ and $A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS V. WILDERS RSI, PART 1$ . From $A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS V. WILDERS RSI, PART 1$ and $A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS V. WILDERS RSI, PART 1$ we can calculate Wilder’s Relative Strength Index (RSI):

$A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS V. WILDERS RSI, PART 1$

RSI is thought to have many uses as an indicator. In particular, many investors believe that it can be used to indicate overbought and oversold levels. Common values of RSI used to indicate overbought and oversold levels are 0.7, for overbought indications–and 0.3, for oversold indications.

In a historical database of stock prices retrieved from Yahoo! Finance, from close to close, from the end of the day when RSI crossed the threshold, from below 0.7 to above 0.7 and above 0.3 to below 0.3, to close five days later, the geometric average returns were (0.135%) for crossing above 0.7 and 0.603% for crossing below 0.3. Using higher thresholds suggested even greater geometric average five day historical returns, (0.659%) and 1.765% for 0.8 and 0.2, respectively. While not every trade based on RSI makes money, clearly, it has been an incredibly powerful technical indicator.

(Note: When economists refer to Relative Strength, they usually mean the ratio of two price indexes.)

Chart of the Day 2012/02/26: U.S. Gasoline Consumption

Jeff

Published: 2012/02/26Posted in: Chart of the Day, Economic Data, Top Level

Chart of the Day 2012/02/26: U.S. Gasoline Consumption

Using the EIA’s Weekly Petroleum Status Report, I prepared a seasonally-adjusted chart of U.S. gasoline consumption. Note: This chart includes exports in consumption. U.S. gasoline exports have tripled in the past two years but still amount to less than 10% of consumption.

As you can see, after seasonal adjustment, there has been a strong downtrend. It could change direction at any time, but there is little sign of slowing or reversal just yet.

Note: This model (based on STL) is designed for making robust short-term predictions. As you can read in the article on my last attempt at modeling this series, the model retroactively adjusts the curve in the past. This facilitates seasonal adjustment, but the tail end of the curve is less accurate than the middle of it. If you want short-term projections, this model should easily defeat the more commonly used X-12 ARIMA seasonal adjustment model most of the time. Most U.S. government bureaus use X-12 ARIMA for seasonal adjustment. A notable exception is the CBO, which often uses STL.

Forecasting with Internet Search Data – Liberty Street Economics

Jeff

Published: 2012/02/10Posted in: Chart of the Day, Economic Data, Media Analysis, Top Level

A January 4 article from the New York Fed’s blog, Liberty Street Economics, suggests that Internet search statistics can be used as coincident indicators, demonstrating correlations between keyword search frequency and time-lagged economics data releases. The authors also suggest that Internet search statistics may be useful leading indicators for the movements of financial markets in the presence of language barriers or other impediments to efficient information aggregation.

Forecasting with Internet Search Data – Liberty Street Economics.

Chart of the Day 2012/02/10: October Soybean Meal Futures

Jeff

Published: 2012/02/09Posted in: Chart of the Day, Commodities, Top Level

Chart of the Day 2012/02/10: October Soybean Meal Futures

October soybean meal futures have broken through resistance at around 323, which recently has been acting as support. They may rise further but are displaying a rising wedge pattern, which historically has often has led to steep declines. Caution is warranted in the near future, especially if the price breaks support.

Incidentally, a feed expert told me last week that soybean meal futures will “likely go up for a couple months and then taper off.” He explained that this was due to seasonal effects. That seems reasonable, although from a purely technical standpoint, soy meal futures look pretty risky right now. And the January USDA Soybean Outlook Report suggests that demand for soybean oil has been low lately. But remember: soy meal is a secondary product. Diminished demand for soybean oil may in fact reduce the supply of soybean meal.

Chart of the Day 2012/02/02: October Soybean Meal Futures

Jeff

Published: 2012/02/02Posted in: Chart of the Day, Commodities

Chart of the Day 2012/02/02: October Soybean Meal Futures

Happy Groundhog Day!

October soybean meal futures gapped up today and formed a small, white marubozu. You can see several small, white marubozus on this chart, and more often than not, they were followed by down days. There appears to be some upside resistance at 323. If the price breaks resistance that would be a bullish indication, but right now indications are bearish.

Chart of the Day 2012/02/01: October Soybean Meal Futures

Jeff

Published: 2012/02/01Posted in: Chart of the Day, Commodities

Chart of the Day 2012/02/01: October Soybean Meal Futures

For today’s chart of the day, I have chosen October soybean meal futures. Soybean meal is an important industrial byproduct from producing vegetable oil. It is used for producing animal feed and also a growing number of human foodstuffs such as ice cream, performance beverages and meal replacement bars.

Since the lows in December, soybean meal futures have performed well but have also taken on a characteristic look that suggests the price has been rising too rapidly–it looks almost like a rising wedge, considered to be a bearish pattern. The price may rise a bit further but the upside potential looks uncertain and the downside risks significant. Short strategies look as though they might be more successful, but it is hard to be very sure at this point. If I planned on playing these, for now, I would try waiting for the rising wedge to extend and/or for a clear support break to develop–or for a good reason to take on a bullish position.

A COMPREHENSIVE REVIEW OF POPULAR TECHNICAL INDICATORS I. BOLLINGER BANDS, PART 2

Jeff

Published: 2012/01/16Posted in: Chart of the Day, Technical Analysis

A COMPREHENSIVE REVIEW OF POPULAR TECHNICAL INDICATORS I. BOLLINGER BANDS, PART 2

To prepare this chart, I calculated the 20 day Bollinger bands of every stock currently listed on Yahoo! Finance (as of January 13, 2012) that has never been priced below $1, at every available timeframe. I then observed the increase in closing price over a 5-day period. The intensity of each slot on the heat map is normalized relative to others directly above or below it.

In the absence of other information, it would seem that the most likely place for a stock price to be 5 days from now is where it is right now, as illustrated by the bright region across the center. You can see support/resistance lines at 1 Bollinger band and 3 Bollinger bands, with weaker support/resistance lines at about 2 1/2 Bollinger bands. Stocks that closed at those levels were more likely to remain at at those levels after five days than stocks that closed at other levels.

Due to the truncation on the chart, you can see that stocks which had Bollinger band readings above 3 were more likely to move much higher over the next 5 days than other stocks. Stocks with Bollinger band readings below 3 were also more likely to move much higher, although the odds weren’t nearly as good as those of stocks with extremely high Bollinger band readings.

Summary:

We didn’t find any evidence supporting the popular 20 day, 2 deviation Bollinger band configuration. That doesn’t mean it doesn’t exist, but we haven’t found it yet. There did appear to be weak support/resistance at around 2 1/2 deviations from the 20 day average.
We found some evidence that there was support or resistance at the 1 deviation Bollinger band on a 20-day timeframe.
We found some evidence that there was support at the 3 deviation Bollinger band on a 20 day timeframe. Stocks that passed outside the 3 deviation Bollinger band were somewhat more likely than other stocks to post large gains, especially if they had passed 3 deviations above the 20 day average.

Well, that was pretty enlightening! While some risk is involved, it appears that Bollinger bands might be able to function alone in profitable strategies. They are more useful, though, in conjunction with other indicators. Check back later in this series for further analysis of Bollinger bands and other popular indicators.

UPDATE: Part 3 shows more details on the distribution of returns of Bollinger band-only strategies.

How Money Works, the Short Version

Jeff

Published: 2012/01/02Posted in: Chart of the Day, Top Level

There are an awful lot of people who don’t understand how the modern monetary system works. If you were to ask 100 people at random what institution is responsible for printing money, I’d expect 70 of them to name the U.S. government. Actually, it’s the Federal Reserve, which is technically an independent entity. Most people don’t realize that when the federal government borrows money, it doesn’t even pay it back; that’s left to the Federal Reserve, which pays it back by borrowing more money or just printing it. And while Federal Reserve vaults do hold large quantities of gold, most of it doesn’t belong to the U.S. There is nothing backing U.S. dollars except the full faith and credit of the U.S. government–and force.

So here’s how it works: The Federal Reserve is the source of all U.S. dollars. Its major activity consists of loaning money to the federal government, which spends it. The federal government also demands payments from people who produce things. These demands give money its value. Money spent goes to the people of the U.S., who both buy and sell various goods and services–including capital–to the rest of the world. The people also carry out transactions with the Federal Reserve, buying and redeeming government bonds.

Between every major actor in the monetary system, the flow of money is two-directional–except between the federal government and the Federal Reserve. Money flows from the Federal Reserve to the federal government, but it does not flow back. But the Federal Reserve can only print money; it can’t create wealth. So the wealth represented by the money that it prints and loans to the federal government can only come from the diminution of capital–inflation, the collapse of the housing market, stock market crashes, and so on.

A little bit of inflation forces the wealthy to generate economic activity to maintain their fortunes. But if the government spends too much for too long, the economy stops functioning. It’s a tricky issue. But politicians at the federal level must address it or be replaced by their successors.

Forex Crunch: USD/CHF Outlook Dec. 5-9

Jeff

Published: 2011/12/04Posted in: Chart of the Day

The U.S. dollar is starting to take on a rather bearish look vs. the Swiss franc. If USD/CHF breaks below 0.9140, it may be a good time to sell dollars and buy Swiss francs. Be ready to retreat if USD/CHF breaks back above 0.9140.

Supra Lockbox Activity

Jeff

Published: 2011/10/03Posted in: Chart of the Day, Real Estate

Northwest Multiple Listing Service runs a blog where they display weekly statistics on Supra lockbox activity. For those of you who don’t already know, a Supra lockbox is one type of device placed on [usually vacant] houses which are listed for sale. It holds the keys for the house. An authorized real estate agent can open the lockbox and remove the keys in order to show the house to a prospective buyer.

While the results can’t necessarily be relied upon in all circumstances, it is reasonable to suppose that Supra lockbox statistics may provide a leading indicator of new home sales.

RMLS Updates Blog – the Latest News and Updates from RMLS Regional Multiple Listing Service.

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