Top Level 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.

A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS PART IV: MACD, PART 1

Jeff

Published: 2012/02/11Posted in: Stocks, Technical Analysis, Top Level

A COMPREHENSIVE OVERVIEW OF POPULAR TECHNICAL INDICATORS PART IV: MACD, PART 1

MACD, or Moving Average Convergence-Divergence, is one of the most popular technical indicators, second perhaps only to Bollinger Bands. It is very easy to calculate. The MACD indicator has three components: MACD, which is simply the a-period EMA minus the b-period EMA; the signal line, which is the c-period EMA of MACD; and the “MACD histogram,” which is MACD minus the signal. When the MACD histogram crosses above 0, that is thought to be a bullish indication. When the MACD histogram crosses below 0, it is thought to be a bearish indication.

A quick look at the five-day close-to-close price changes following MACD crossovers (using the popular 12, 26, 9 parameter values) suggests on a historical database of U.S. non-penny stocks (derived from Yahoo! Finance’s free stock price data) geometric average five-day gains of 0.382% following positive crossovers and (0.210%) following negative crossovers. The database contained no delisted stocks, so these results may understate the risk for purchases, but the evidence clearly supports the popular notion that MACD has been a powerful indicator.

This post contains images derived from works found at Wikipedia and used under license.

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.

Stocks & Commodities Magazine Available Free Online

Jeff

Published: 2012/02/04Posted in: Commodities, Stocks, Technical Analysis, Top Level

Stocks & Commodities Magazine Available Free Online

While researching the Aroon indicator earlier today, I noticed that Stocks & Commodities magazine, considered one of the leading authorities on technical analysis, is available for free on their web site. You won’t be able to download the PDF edition without a subscription, but the archives area contains web versions of every volume since 1996.

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.

SEC: Investor Alert: Investment Seminars – Trading Seminar Scams

Jeff

Published: 2011/10/22Posted in: Investing, Top Level

The SEC recently issued an alert about investment seminar scams. Remember: Investing is NOT easy, and is virtually never guaranteed (unless you are buying U.S. treasury bonds). Generally, investors profit from investment only by taking on risk in an intelligent, informed manner and having good luck.

Investor Alert: Investment Seminars – Trading Seminar Scams.

Before You Shop, Check Out The Best Printable Coupon Sites – The Consumerist

Jeff

Published: 2011/05/21Posted in: Personal Finance, Top Level

I don’t usually cover coupon sites on this site, but with the way food costs have been rising lately, it might be a good idea to have a look at this compilation from The Consumerist.

Before You Shop, Check Out The Best Printable Coupon Sites – The Consumerist.