Terminology and Time Frames

When you read the Daily Outlook reports each evening, I use my own set of terminology and I reference different time frames in a manner that I am accustom to. Unfortunately, you and I probably have a slightly different idea of what short-term and very short-term means so I put together the following list. This should help you to understand what I am talking about when I use certain phrases to reference certain things. And, if you still have questions, please ask.

Jim Patterson

Time Frames

• Very short-term cycles
  • The average time from very short-term cycle low to cycle low is about 3.25 to 3.75 trading days.
  • The average time from very short-term cycle high to cycle high is about 3.25 to 3.75 trading days.
• The Short-term cycles
  • Sometimes I refer to this set as a longer cycle series if I am talking about the very short-term cycles.
  • This is about a 13 trading day cycle, but at times it may be as long as 15 to 18 days or as short as 9 days. It depends on recent market activity
  • This cycle is better for finding lows, but because of the length sometimes the window for the low will be as large as plus or minus two days, which is almost a five day window.
  • When other factors support a smaller time window, can be very accurate
• Very Long-term cycle series
  • I actually use this term to refer to the Bradley indicator.
  • This cycle is based on planetary alignments, and while that may seem kind of silly to some folks, when it works it works very well. I am always alert for a potential change of trend at a major Bradley turning point.
• The Daily trends
  • Signals from the Daily trends are good for one to three days. I am not interested in trading the daily signals. I am interested in how well they are working. If an important longer-term, meaning more than a few days, trend change is approaching then the daily trends should stop working. All trend changes will be reflected at the shortest time frame first.
• The 3-day Trends
  • The best purely mechanical indicator I have ever seen.
  • The 3-day trends can always change direction on the last day of the week.
  • Bottom line, weakness at the end of the week suggests additional weakness in the first part of the following week
  • Strength on Friday points towards strength early the following week.
  • The time frame for the 3-day trends is about 3 days, because they can usually change direction in three trading days.
• Weekly Trend
  • Weekly trends turn on average about every 25 to 30 calendar days, and this is probably the most important time frame for the style of trading we do.
  • When the weekly trends turn, you should expect a bounce at that level and then a continuation for another few days.
  • The important question is, is the weekly trend working

Terminology

• Market Breadth
  • Advancing issues minus Declining issues
  • I look at the NYSE numbers, the NASD numbers and then I combine them for a total market breadth number.
• Buying Pressure and Selling Pressure
  • The goal is to produce a metric that accurately reflects folks eagerness to buy and sell on a given day. Volume always leads price because with out volume, folks wanting to buy or sell, there would be no change in price.
    • If a stock closes higher then there were more buyers that were more eager than the sellers were and that is buying pressure.
    • One could think of Up volume as buying pressure and Down volume as selling pressure.
    • The difference between up volume and down volume is NET Directional Volume
  • Relative Buying and Selling pressure
    • represent today's Up volume (buying pressure) relative to what we have seen over the past two weeks (10-day up volume) Because I am comparing today's value with a moving average, which is constantly changing, Relative buying pressure can be greater than 100% on a really good day.
    • The calculation is the same for Selling Pressure
  • 8-Day Relative Buying and Selling Pressure
    • This is a weighted moving average of daily buying and selling pressure.
    • When the reading is above about 57% a trend should be sustainable
    • When a reading reaches above 70% it becomes unsustainable
    • When a reading falls below 35% or even better, 30%, a change of trend is likely
• CQI Index Confidence in Quality Index
  • This metric is designed to respond when folks are committing new cash into the market or they are removing cash from the market.
    • If breadth is about even then folks are selling one stock and buying another. If breadth is heavy to one side then folks are either buying with new money or they are selling and not putting the money back to work
    • If the metric rises as the market rises it is a sign of a weakening trend, and it also works the other way around.
  • This is more of a general condition indicator and is only valid at certain points in time
• The TRIN 5
  • This is a five day sum of the Arms Index or its more common name, the Trin.
    • The Trin index is equal to Advancing issues over declining issues Then put that number over Advancing volume over Declining volume.
    • A reading above 1 suggests market weakness while a reading below 1 suggests a strong market
  • When the Trin-5 goes above 7.75 the market is oversold
  • When the Trin-5 goes below 4.25 the market is overbought
• 5-Day RSI
  • This number is based on the original Wilder RSI formula from his book "New concepts in Technical Trading Systems"
  • The 5-day RSI reaches overbought at 70 and becomes very overbought above 80.
  • The 5-day RSI reaches oversold at 30 and becomes very oversold below 20.
  • An RSI number will always be between 0 and 100, and readings below 10 or above 90 are very uncommon. Very important trend changes often occur after an extreme reading.
  • Divergences are also good to look for where prices are higher or lower while the RSI reaches a muted level relative to the previous level.
• VXO Buy and Sell Signal
  • When the signal reaches 100%, a signal is given the first day when it is no longer 100%
  • Since March 2003, we have been ignoring these signals because they simply are not working.

Copyright ©2007 21st Century Alert. All rights reserved.