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Dec 6, 2018 | Charts, EDS, EDS code, educational newsletters, indicators, jay kaeppel
Trend-following is essentially a “tried and true’ approach to investing. But overbought/oversold (i.e., attempting to buy low/sell high) – that’s where the “excitement” is. Of course, when it comes to trading and investing, “excitement” can be highly overrated. Nevertheless, in this piece I want to talk about a relatively obscure indicator that may be useful in identifying vastly oversold situations.
EDITORS NOTE: The WinWay EDS file for Jay Kaeppel’s indicator is available to download here
Part of the reason this indicator is obscure is because I think I “invented” it – but only by mashing together an indicator from Larry Williams and an indicator from Welles Wilder. The first part is the standard Welles Wilder 14-day Relative Strength Index, more commonly referred to as “RSI”.
The 2nd part of VixRSI14 is an indicator created by famed trader Larry Williams which he dubbed “VixFix”. This indicator is an effort to create a “Vix Index-like” indicator for any security.
WinWay TradingExpert code for these indicators appears at the end of the article.
*For the record, VixRSI14 is calculated by taking a 3-day exponential average of VixFix and dividing that by a 3-day exponential average of RSI14 (are we having fun yet?). Please see code at the end of the article.
*I prefer to use VixRSI14 using weekly data rather than daily data
*(Unfortunately) There are no “magic numbers” that indicate that a completely risk-free, you can’t lose, just buy now and watch the money roll in” buying opportunity is at hand (Disclaimer: If there was, I would probably just keep it to myself and not bother writing the article – sorry, it’s just my nature). That being said, a decent “rule of thumb” is to look for a reading above 3.5 followed by a downside reversal.
(Click any chart below to enlarge)
With those thoughts in mind, Figure 1 displays a weekly chart of Wynn Resorts (WYNN) with the two indicators plotted separately below the bar chart.
Figure 1 – WYNN with William’s VixFix and Wilder’s RSI 14-day (Courtesy WinWay TradingExpert)
Note that as price declines, VixFix tends to rise and RSI14 tends to fall. VIXRSI14 essentially identifies “extremes” in the difference between these two. Figure 2 displays WYNN with VixRSI14 plotted below the bar chart.
More “examples” appear in Figures 3 through 8 below.
As always, I merely present “ideas” here at JOTM. So, do not assume from the charts above that you have found the “keys to the kingdom”. But if used in conjunction with other confirming indicators – and remembering to employ some sort of risk control for those instances when a stock price decline fails to arrest itself even after VixRSI4 peaks above 3.5 – VixRSI14 may hold some value.
Indicator Code
EDITORS NOTE: The WinWay EDS file for Jay Kaeppel’s indicator is available to download here
Below is the code for VixFix, RSI14 and VixRSI14 from AIQ Expert Design Studio.
!#######################################
hivalclose is hival([close],22).
vixfix is (((hivalclose-[low])/hivalclose)*100)+50.
!#######################################
!#######################################
U14 is [close]-val([close],1).
D14 is val([close],1)-[close].
AvgU14 is ExpAvg(iff(U14>0,U14,0),days14).
AvgD14 is ExpAvg(iff(D14>=0,D14,0),days14).
RSI14 is 100-(100/(1+(AvgU14/AvgD14))).
!#######################################
!#######################################
VixRSI14 is expavg(vixfix,3)/expavg(RSI14,3).
!#######################################
Disclaimer: The data presented herein were obtained from various third-party sources. While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.
Jun 8, 2018 | Charts, educational newsletters, ETFs, gold, group and sector, indexes, jay kaeppel
There are a lot of ways to play this game.
For the record, I am a big believer in trend-following. Picking tops and bottoms with any consistency is essentially impossible (at least in my opinion and/or experience). So from that perspective going with the trend makes a lot of sense. I am also a big believer in relative strength. Much evidence over the years suggests that buying what is “already moving” is a very viable approach to investing. Other studies have demonstrated pretty clearly that you are generally much more likely to succeed by buying stocks making new highs than by buying stocks making new lows.
These approaches make good sense and they work very well over time. Despite this many (most?) investors still feel those pangs to “buy low” in hopes of getting in early and riding a major trend. And the truth (I think) is that this can work too, if done correctly.
Like I said, there are a lot of ways to play this game. But there is a definite “right” way and “wrong” way when it comes to “buying low.”
Buying Low (The Wrong Way): Buy things are plummeting or that have recently plummeted.
The Right Way (The Right Way): Buy things that have, a) plummeted, b) stopped plummeting and, c) have since been moving sideways for some period of time.
Last year I wrote about a “Buy Low” portfolio that I had concocted at the time. Unfortunately, several of the ETFs involved have since ceased trading. So in this piece I will introduce my updated “Buy Low” portfolio. For the record – and as always – I am not “recommending” this portfolio. It is essentially an experiment in one alternative approach to investing.
The “Buy Low” Portfolio
The Buy Low Portfolio consists of the following ETF’s and ETN’s:
CANE – Tecrium Sugar
JJOFF – Coffee Subindex Total Return
DBA – PowerShares Agricultural
WEAT – Tecrium Wheat
GLD – StreetTracks Gold Trust
PPLT – ETFS Physical Platinum Shares
SLV – iShares Silver Trust
GDX – Market Vectors Gold Miners
UNG – United States Natural Gas
URA – Global X Uranium
Monthly charts for these tickers appear in Figures 1 through 3. A chart of the composite index I created by combining all of these appears in Figure 4 (Click any chart to enlarge).
Editors note: To create an index like Jay’s Trending Low, follow the instructions at the end of this article ‘Creating an index for a group of tickers in Data Manager’
Summary
Securities that have plummeted in price and then moved sideways for a period of time can (unfortunately) continue to move sideways for quite a while longer before (hopefully) breaking out to the upside. Even worst, they can also fail and breakdown through the previous low. But extended consolidation patterns are often followed by something good.
As you can see all of the tickers in the list above are commodity related. As I’ve written about
here and
here there is reason to believe that commodities will outperform in the years ahead. That being said, with the stock market rallying in the near-term and with the U.S. Dollar strong there is no compelling reason to think that this “Buy Low Portfolio” is going to make a lot of headway anytime soon.
The Index in Figure 4 is presently 8.2% above its January 2016 low. As long as that low holds I’ll give this experiment more time to work out.
Jay Kaeppel
Disclaimer: The data presented herein were obtained from various third-party sources. While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.
Creating an index for a group of tickers in Data Manager
NOTE: tickers with X in list need to be added to the Data Manager as new tickers and downloaded from your data service
When you create an index for a group of tickers, you can display a chart of the index as well as the underlying tickers. A group index can be analyzed on charts using technical indicators, and Expert Ratings are generated for the group index (except for mutual fund
groups).
The procedure for creating an index for a group of tickers is as follows:
- First, create a group ticker for the index.
- Then create a list to insert the group ticker into.
- Add tickers to the group.
- Finally, create the index by executing the Compute Group/Sector Indices function.
To create an index for a group of tickers, follow the steps below.
First, create a group ticker:
1. First, add a new group ticker to your Master Ticker List. Select the
Ticker command on the menu bar. Then select New to display the
New Ticker dialog box.
2. Enter a ticker for the new group, then be sure to enter the proper
Type designation (group or mutual fund group).
3. Click OK, and the second dialog box for entering a new ticker
appears.
4. Type in a name (Description) and the First Date for data. The
remaining default settings on this second dialog box can remain the
same.
5. Click OK and the group ticker is added to your Master Ticker List.
Then, create a list to insert the group ticker into:
1. Select the List command on the menu bar.
2. Select New on the drop-down menu and a dialog box appears.
3. Type in a name (8 characters maximum) in the text box.
4. Click OK and the list name appears in the Selected List text box
located on the toolbar.
5. The list name is also displayed in the List window. Insert the group
ticker from your Master Ticker List under the list name. To insert a ticker directly under a list, do the following:
- Highlight (by clicking) the group ticker in the Master Ticker List.
- Click the list name in the List window.
- Click the Insert to List button on the toolbar (or select the Insert Ticker command from the List sub-menu).
- The group ticker will appear in the List window under the list name.
6. Next, insert tickers into the group. To insert tickers into a group:
Under the new group, insert all of the tickers that will make up the
group by doing the following:
- Select the group ticker in the List window by clicking on it.
- Select in your Master Ticker List the tickers that you want to add to the group. If you are inserting multiple tickers, hold down the Ctrl key while clicking each ticker.
- Click the Insert to List button on the toolbar (or select the Insert Ticker command from the List sub-menu).
- The tickers will appear in the List window under the group ticker.
7. Finally, compute the index for the new group. To compute a group index:
- Select Compute Group/Sector Indices from the Utilities sub-menu.
- In the Compute Group/Sector Indices dialog box, click the Compute List(s) option button.
- In the text box for Compute List(s), select the name of the list you created above.
- Under Range, choose Update from Last Date of Data and click OK.
Apr 30, 2018 | Charts, EDS code, indexes, indicators, jay kaeppel
Last week I wrote an article purporting to highlight significant levels of support and resistance across a variety of financial markets. Well, it turns out there are more.
More Notes on “Lines”
I certainly look at the markets more from the “technical” side than the “fundamental” side (not even a conscious choice really – I just never really had much success buying things based on fundamentals. That doesn’t mean I think fundamentals are useless or that they don’t “work” – they just didn’t work for me).
Once I settled on the technical side of things, I started reading books about technical analysis. All the classics. I learned about chart patterns and trend lines. By definition, a trend line is a line drawn on a price chart that connects two or more successive lows or highs.
And then I got to work looking through charts and applying everything that I thought I had learned. And like a lot of “newbie” technicians – and a surprising number of seasoned ones – I typically ended up drawing “lines on charts” that would resemble something like what you see in Figure 1.
Figure 1 – “Important” trend lines (or not?) (Courtesy
TradingExpert)
For a technical analyst this is sort of the equivalent of “throwing up” on a chart (and the real pisser was that back in the day a fresh updated booklet of charts would show up in the mail each week – so you had to “throw up’ all over all the charts again and redraw every #$^& “important” line!!).
At some point I realized that perhaps every “important” line that I was drawing on a multitude of charts was perhaps maybe not so “important” after all. This revelation led me to establish the following maxim (as much to force me to “fight the urge” as anything:
Jay’s Trading Maxim #18: If you draw enough lines on a bar chart, price will eventually hit one or more of them.
True Confession Time
There are certain dirty little secrets that no respectable technician should ever utter. But just to “get a little crazy” (OK, at last by my standards – which are quite low, apparently) I’m going to put it down in print:
I hate trend lines
There, I said it. Now for the record, up sloping and down sloping trend lines are a perfectly viable trading tool if used properly. I personally know plenty of people trading successfully using trend lines drawn on a price chart. Sadly, I’m just not one of them.
So remember the lesson I learned the hard way – “There is no defense for user error.”
The full truth is that I have nothing against trend lines, and yes I understand that there are “objective” methods out there detailing the “correct” method for choosing which two points to connect to draw a proper trend line (DeMark, Magee, I think Pring to name a few). But I somehow seem to have failed that lesson.
One Line I Do Like
I still draw slanting trend lines from time to time. But the only lines I really like are lines that are drawn horizontally across a bar chart – i.e., “support” and “resistance” lines. A multiple top or a multiple bottom marks a level where the bulls or the bears made a run and could not break through. Now that’s an “important” price level. If that price level ultimately holds it means the charge failed and that a significant reversal is imminent. If it ultimately fails to hold it means a breakout and a possible new charge to ever further new highs or lows as the case may be (for the record, it could also mean that a false breakout followed by a whipsaw is about to occur. But, hey, that’s the price of admission).
I also like horizontal lines because even if very single horizontal line does not prove to be useful as a trading tool, it can still serve a purpose as a “perspective tool”. Rather than explaining that theory let’s just “go to the charts.”
More “Lines in the Sand”
Figure 2 displays an index of bond and income related ETFs that I created. Roughly half of the ETFs have a higher correlation to treasury bonds and the other half to the S&P 500 Index (i.e., CWB – convertible bonds, JNK – high yield corporate, PFF – preferred stock and XLU – utilities all react to interest rates but are more correlated to the stock market than to treasury bonds).
Figure 2 – Bond and Income Related ETF Index (Courtesy
TradingExpert)
This monthly chart clearly illustrates the struggle going on in the interest rate related sector. Interest rates mostly bottomed out in 2013 and have been grinding sideways to higher since. As you can see, interest rate related securities have been trapped in a sort of large trading range for years. Eventually, if the long-term trend in rates turns higher this chart should be expected to break through the lower (support) line Figure 2.
Still focusing on interest rate related sectors, Figure 3 displays a monthly index comprised of 3 REITs. Talk about a market sector trapped in a range.
For what it is worth, Figure 4 displays a weekly chart of the same index with an indicator I call Vixfixaverage (code for this indicator appears at the end of the article). Typically, when this indicator exceeds 60 and then tops out, a decent rally often ensues (one word of warning, there is also often some further downside before that rally ensues to caution is in order).
Speaking of oversold “things”, Figure 5 displays an index of Master Limited Partnerships (MLP’s). As you can see in Figure 5, a) divergences between price and the 4-month RSI are often followed by significant rallies, and b) a new such divergence has just been established. Does this mean that MLP’s are destined to rally higher? Not necessarily, but given the information in Figure 5 and the fact that everybody hates MLP’s right now, it’s something to think about.
AIQ TradingExpert Code for Vixfixaverage
hivalclose is hival([close],22).
vixfix is (((hivalclose-[low])/hivalclose)*100)+50.
vixfixaverage is Expavg(vixfix,3).
Jay Kaeppel
Disclaimer: The data presented herein were obtained from various third-party sources. While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.
Mar 29, 2018 | Charts, EDS, EDS code, Risk management
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Oct 10, 2017 | Charts, EDS, EDS code, indicators, jay kaeppel
First the Bad News: There are no “magic bullets” when it comes to trading. There are people in this industry who have literally tested somewhere in the range of six bazillion “indicators” – give or take (“Hi. My name is Jay”). Every trend following indicator looks like a gold mine when it latches onto a huge trend and rides it (but not so much when it starts getting whipsawed). And every overbought/oversold indicator looks like a gift from heaven from time to time when it somehow manages to peak (or valley) and then reverses right at a high (or low). And then the next time the thing gets oversold the security in question just keeps plunging and the previously “amazingly accurate” indicator just gets more and more oversold.
Bottom line: what I am about to discuss is likely no better or worse than a lot of other indicators. And it is no holy grail. Still, I kinda like it – or whatever that is worth.
EDITORS NOTE an WinWay EDS file for this indicator with the 3 step rules outlined can be downloaded from here you will need to copy or save this file into your wintes32/eds strategies folder. Alternatively the code is available at the end of this article for copying and pasting into a new EDS file.
UpDays20
I call this indicator UpDays20 and I stole, er, learned it originally from Tom McClellan of McLellan Financial Publications. My calculation may be slightly different because I wanted an indicator that can go both positive and negative.
For a given security look at its trading gains and losses over the latest 20 trading days.
UPDays20 = (Total # of Up days over the last 20 trading days) – 10
So if 10 of the last 20 trading days showed a gain then UpDays20 would read exactly 0.
If only 6 of the last 20 trading days showed a gain then UpDays20 would read -4
You get the idea (and proving once again that it “doesn’t have to be rocket science”). As a “trading method” it is always advised that this indicator – like most all other indicators – NOT be used as a standalone approach to trading. That being said, the way I follow this indicator is as follows.
Step 1) UpDays20 drops to at least -2
Step 2) UpDays20 rises 2 points from a low
Step 3) The security in question then rises above its high for the previous 2 trading days
It is preferable to follow this setup hen the security in question is above its 200-day moving average, but that is up to the trader to decide (the danger to using this with a security below its 200-day moving average is that it might just be in the middle of a freefall. The upside is that counter trend rallies can be fast and furious – even if sometimes short-lived).
Again, there is nothing magic about these particular steps. They are simply designed to do the following:
1) Identify an oversold condition
2) Wait for some of the selling pressure to abate
3) Wait for the security to show some sign of reversing to the upside
Like just about every other indicator/method, sometimes it is uncannily accurate and sometimes it is embarrassingly wrong (hence the reason experienced traders understand that capital allocation and risk management are far more important than the actually method you use to enter trades).
In this previous article (in Figures 3 and 4) I wrote about using this indicator with ticker TLT. Figure 1 and 2 display the “buy” signals generated using the rules above for tickers IYT and GLD.
Figure 1 – UpDays20 “Buy” Alerts for ticker IYT (Courtesy TradingExpert)
Figure 2 – UpDays20 “Buy” Alerts for ticker GLD (Courtesy TradingExpert)
Are these signals good or bad? That is in the eye of the beholder and not for me to say. One big unanswered question is “when do you exit”? That is beyond the scope of this “idea” article – however, “sell some at the first good profit and then use a trailing stop” looks like a decent approach to consider) but would have a profound effect on any actual trading results.
Some of the signals displayed in Figures 1 and 2 are obviously great, others are maybe not so hot. Interestingly, some of the signals in Figure 1 and 2 that don’t look to timely at first blush actually offered a profitable opportunity to a trader who was inclined to take a quick profit. Again, how you allocate capital and when you exit with a profit and when you exit with a loss would likely have as much impact on results as the raw “buy” signals themselves.
Summary
No one should go out and start trying to trade tomorrow based on UpDays20. No claim is being made that the steps detailed herein will result in profits nor even that this is a good way to trade.
But, hey, it’s one way.
Jay Kaeppel Chief Market Analyst at JayOnTheMarkets.com and TradingExpert Pro client.
Disclaimer: The data presented herein were obtained from various third-party sources. While I believe the data to be reliable, no representation is made as to, and no responsibility, warranty or liability is accepted for the accuracy or completeness of such information. The information, opinions and ideas expressed herein are for informational and educational purposes only and do not constitute and should not be construed as investment advice, an advertisement or offering of investment advisory services, or an offer to sell or a solicitation to buy any security.
EDITORS NOTE an WinWay EDS file for this indicator with the 3 step rules outlined can be downloaded from here you will need to copy or save this file into your wintes32/eds strategies folder. Alternatively the code is available at the end of this article for copying and pasting into a new EDS file.
! UpDays20 – I call this indicator UpDays20. For a given security look at its trading gains and losses over the latest 20 trading days.
! UPDays20 = (Total # of Up days over the last 20 trading days) – 10!
So if 10 of the last 20 trading days showed a gain then UpDays20 would read exactly 0.
! If only 6 of the last 20 trading days showed a gain then UpDays20 would read -4
Upday if [close]>val([close],1).
totalupdayslast20days is CountOf(upday,20).
updayindicator is totalupdayslast20days – 10.
! How to follow this indicator
! Step 1) UpDays20 drops to at least -2
! Step 2) UpDays20 rises 2 points from a low
! Step 3) The security in question then rises above its high for the previous 2 trading days
UpDays20rises2points if updayindicator>valresult(updayindicator,1) and valresult(updayindicator,1)>valresult(updayindicator,2).
updays20atminus2orlower if valresult(updayindicator,2)<=-2.
closesabovehighof2priordays if [close]>val([high],1) and [close]>val([high],2).
Upsignal if UpDays20rises2points and updays20atminus2orlower and closesabovehighof2priordays.
English