Buy

Market School: Technical Indicators 12 – Triple Exponential Average (TRIX)

Triple Exponential Average (TRIX) is a momentum indicator that displays the percent rate-of-change of a triple exponentially smoothed moving average of a security’s closing price. The triple exponential average (TRIX) indicator is an oscillator used to identify oversold and overbought markets, and it can also be used as a momentum indicator. Like many oscillators, TRIX oscillates around a zero line. When it is used as an oscillator, a positive value indicates an overbought market while a negative value indicates an oversold market. When TRIX is used as a momentum indicator, a positive value suggests momentum is increasing while a negative value suggests momentum is decreasing. Many analysts believe that when the TRIX crosses above the zero line it gives a buy signal, and when it closes below the zero line, it gives a sell signal. Also, divergences between price and TRIX can indicate significant turning points in the market.

USES

Since TRIX measures the rate-of-change of closing prices, a positive TRIX value is interpreted as a steady rise in the closing price of a security. A positive TRIX is thus akin to a positive trending price, allowing the indicator to act as a buy signal whenever it crosses up above the zero line. Similarly, crossing below the zero line suggests the price is tending to close down at the end of each period, which can be a sell signal.

The “signal line” is also a useful buy/sell indicator. Since the signal line period is shorter, a cross above it suggests that recent stock prices are closing much higher. A buy signal is triggered when TRIX crosses above its signal line, and a sell signal is triggered when TRIX crosses below its signal line. This method can generate false signals during sideways price movements, so it works best when prices are trending. It is therefore wise to use TRIX in tandem with other indicators for confirmation.

[Chart via Stock Signals]
Triple Exponentials Average (TRIX) in a real-time stock chart displayed via Stock Signals

Track and use Triple Exponential Average (TRIX) in your daily analysis in real-time with our iPhone & iPad apps.

Arbitrage Trader Note: Buy SPX!

On February 25th, when the S&P500 index was trading at around 1,520′s, we wrote that the short-term market trend would turn to bearish and the setback would most likely test the 1,490 (maybe even further down to 1,450) level. Parallel to our expectations, following the elections in Italy, the market fell sharply on that day, closing at 1,487. Even though the Arbitrage Trader algorithm accurately predicted this mode in advance, the model did not forecast that the market would make up the decline in the following 2 trading sessions during which the market increased to where it stayed the week before. As our clients have noticed, the Arbitrage Trader model reversed its short-term forecast for the generic stock market to buy as of Friday morning:

- Statistical arbitrage model now recommends “buy”. Our Arbitrage Trader model algorithm is signaling a bullish trend in the indices for the coming 10-12 trading days. Even though we are moving only within the 2-3% distance from the all time high for the S&P500, the algorithm currently predicts further upside move. The bottom formation around 1,500 is also supporting further upside for the market.

- Technically, for the S&P500 index, 1,530 will be a key resistance level. Any daily close above this level with significant volume would confirm the bullish trend. For an aggressive trader, we would recommend 1,500 as a key support level or stop level.

In short, we now have a bullish view on the generic market for the coming 10-12 trading days and recommend our clients to buy into weakness in the market. However, we also strongly recommend frequent checks on our app as the overall volatility is now higher in the markets.

The short-term statistical arbitrage model that we use to generate these buy/sell market signals is the same model that we use to power Stock Arbitrage Trader for the iPhone & iPad to generate buy/sell signals for specific stocks. Click here to learn more or download now!

Market School: Technical Indicators 6 – Rate of Change (ROC)

The Rate of Change (ROC) indicator is one of the simplest equations available in modern technical analysis. ROC is a measure of price change velocity calculated as the difference between the current bar’s price and the price a selected number of bars ago. Basically, it represents the rate of change of the trading instrument’s price over those specified time periods. The faster prices rise, the larger the increase in momentum. The faster prices decline, the larger the decrease in momentum. As the price movement begins to slow the momentum will also slow and return to a more median level.

USES

The Momentum indicator is a versatile indicator capable of producing a wide array of buy and sell signals. However, there are three basic methods of interpreting the ROC indicator:

Zero-Level Crossovers: A buy signal occurs when ROC crosses above zero and sell signal when ROC crosses below zero.

ROC Technical Indicator Chart

Extreme Overbought/Oversold Levels: To use ROC as an overbought/oversold indicator, the user must identify potential overbought and oversold levels based on previous indicator readings; when choosing the overbought and oversold levels the user should ensure that at least two-thirds of previous ROC values fall between the overbought and oversold levels. Readings above the overbought level imply an overbought condition (and a pending price correction) while readings below the oversold level imply an oversold condition (and a pending rally).

ROC Technical Indicator Chart in an iPad App, real-time

Trend Line Breakouts: Trend lines can be drawn connecting the peaks and troughs of the ROC indicator. Often momentum begins to turn before price thereby making it a leading indicator. ROC readings breaking above a declining trend line warns of a possible bullish reversal while ROC readings breaking below a rising trend line warns of a possible bearish reversal.

Track and use Rate of Change (ROC) in your daily analysis in real-time with our iPhone & iPad apps.

I use a variety of software to manage a $37 million portfolio of client assets at CB3.  While the missingSTEP software apps are not my only decision-making tools, they are key. Recently, the Arbitrage Model Short-Term Forecast was dead on within a few hours of picking the top in the market: it flipped to a SELL after being on a BUY for an unusually long period of time of two months. This single indicator is roughly 25-30% of my decision-making process for my overall bias of market direction. Even with the Bloomberg Terminal and Reuters data that we use, I find that the  missingSTEP Arbitrage Model Short-Term Forecast is correct more than 70% of the time when it flips. I would encourage both novices and pros to consider one or more of the missingSTEP apps, all of which offer this Arbitrage Model Short-Term Forecast.

— A Note on the Arbitrage Model Short-Term Forecast from Charles Brown of CB3

Arbitrage Trader Note: Reiterate Buy

HIGHER AND HIGHER: REITERATING BUY FOR S&P500

On August 1st, we reiterated our “buy” signal for the generic market when S&P500 index was trading at 1,380s. As our clients have followed, in our note on that day we even stated that we might see a break of 1,422 for S&P (previous high of 2012). Parallel to our expectations, following a strong rally, S&P500 closed at its peak for the year (1,437) on Friday, September 7th. As of today, our arbitrage model signals a continued upward trend for the coming at least 2-week period:

  • Statistical arbitrage continues to recommend “buy”. While some of our clients are skeptical about the recent move, our market model algorithm continues to indicate a typical momentum characteristic (higher highs for the bull markets and lower lows for the bear markets). This signal is typically followed by markets moving in a trending way as opposed to moving in ranges. This trending characteristic has already started in the past 3 weeks and we expect to see the continuation of it for the coming 10-13 trading days.
  • Technically, we now target 1,496-1,523 level for S&P500. 1,485 would be a key level if the index starts to trade in ranges at that level. The speed of increase in markets and overall volume would be significant indicators to watch.
  • EU off the table? Is FED next after ECB? While the recessions and/or slowdowns in EU economies are still in place (e.g., Germany will likely be the next to enter recession in the second half of 2012) ECB’s last week’s move to announce the unlimited asset purchase program is very significant and potentially clears out a big uncertainty from the systematic risk. If the FED announces a QE3 this Thursday, markets may easily see the levels mentioned above. In the very near-term, we think expectations from the Central Banks will continue to drive the markets (or risk-on trades) upwards.

In short, we reiterate our bullish view on the generic market for the coming 2-weeks and recommend our clients to buy into weakness.

Stay on top of market movement and other Buy/Sell signals with Stock Arbitrage Trader for the iPhone or iPad.

Buy SPX 05-14-2012

TACTICAL SUPPORT IN PLACE: CHANGING OUR MARKET DIRECTION TO BUY

On May 11th, our statistical arbitrage model reiterated its sell signal for the S&P500 index. While the market behaved parallel to our expectations on Friday and so far today (Monday 14th), our most current statistical signals actually start to indicate a bounceback from current levels, mainly 1,340, for the S&P500 index:

  • Statistical arbitrage is now starting to signal buy. We are changing our recent view from further sell-off to buy as our mathematical model started to suggest that some major statistical indicators in our proprietery model do not show enough widening for further downwards moves. Additionally, our model currently does not signal enough dispersion in correlation matrixes, a typical behavior in times of panic and big sell-offs.
  • Technically, for the S&P500 index, levels around 1,340 seem to be holding pretty well as a key, interim support level. While we earlier predicted that 1,292 is a level we might likely see during the second half of May, current market behavior actually indicates an upwards move.

Given the critical and continuously updated news flow coming from the EU (e.g., Greece crisis) and increased volatility in markets fueled by sharp decreases in the EUR/USD exchange rate, our expectations for an upward bounce back may again be a short-lived. So, we recommend our clients to remain very cautious when entering the market.

Get this market direction change instantly through your iPhone or iPad with Stock Arbitrage Trader. Learn more about Stock Arbitrage Trader.

 Scroll to top