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The Morning Cup of Jo


A Mind is a terrible thing to waste.


With yesterday's pullback, I thought it appropriate to show some other road signs most Techies look at when determining ST, IT, and LT trading patterns. However, as Brodsky so eloquently put it Monday at 'Breakfast', "Let us not forget that is the point of this business. To make money. Not to be right theoretically." He could never be so right. We can look at charts and patterns all day, but if that doesn't lead to profit, what good is it? Remember, these road signs I'm showing you are only to be used to help determine the speed of the traffic and what "May Possibly" lie ahead in the road. In other words, it keeps your wits about you instead of just running blindly in the woods. Don't get caught up in not being able to see the forest through the trees.

On the other hand, Knowledge is Power, and I believe the more technically informed you are, the better trader/investor you will become!

So let's take a look...

The top graph is the SPX's RSI, 2nd is the MACD, 3rd is the Stochastic, 4th is Price/Volume, 5th is % of NYSE stocks trading above 150-Day MA, and the bottom is a 10-day MA of NYSE new highs.

WONDA Copyright 2004 William O'Neil+Co., Inc. All Rights Reserved

1. RSI (Relative Strength Indicator) - this compares price in relation to itself - not to be confused with the RS of an issue in comparison to an index. This only measures momentum (velocity) of itself compared to its Relative Past.

You'll notice the RSI of the SPX is trading much lower on new highs in price (Divergence)

2. MACD (Moving Average Convergence/Divergence) - once again, another way of measuring momentum - discussed in a prior 'Jo."

This is also showing a Divergence.

3. The Stochastic - also a momentum measurement - compares the current closing price and its position within the spread (Relative High - Relative Low) over a period certain.


4. This one is simple - Price/Volume


5. % of NYSE stocks trading above 150-Day MA - this one is mainly used to help determine the 'Heat' of the market. In other words, it can help determine if the market is getting overvalued.

When a large % of stocks are all on the same side, things have a tendency to revert to the mean.

6. Lastly, this is the 10-day MA of New Highs in the NYSE. Somewhat the same principle as the % of stocks above the 150-Day MA. However, this can be used to help determine the amount of stocks pushing the market higher.

This graph shows as the market has hit new highs, and is approaching again, the amount of stocks pushing it is much less.


With all of this said, I'll revert to Professor Brodsky - none of this matters if you're not making any money.

Until next time...


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No positions in stocks mentioned.

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