Hi Don - The only indicator you left out in your analysis is the OBV (On Balance Volume). I find that the OBV measures accumulation, over bought and over sold conditions quite well.
My system calculates the 14 day OBV and the 200 day MA for all the stocks on my watch list. Here is the current reading for Novell as of last night's close:
3/20/98
Volume: 2,990,300
C: 10 1/16 H: 10 3/8 L: 10 O: 10 5/16
200 Day MA: 8.356
OBV: (14) 63,812,800
The OBV is decreasing as the most recent high was achieved on 3/13/98 (OBV: (14) 124,791,700 the stock closed at 10 5/16).
The most current OBV low (during this cycle) was achieved on 12/29/97 (OBV: (14) -41,161,500 the stock closed at 7 1/8).
From the OBV low to high the stock has move 3.1875 points and the absolute value change in the OBV was + 165,953,200 shares. Since then (3/13/98) the OBV has declined to a positive 63,812,800 shares which represents about a 40% retracement.
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Where do we go from here?
1) (IMO) The OBV is still at an overbought level and needs to reach a '0' level to shake out all the bull's.
2) Review the time period and OBV levels between 2/3/97 through 3/17/97. The OBV fell from 83,459,400 to -63,118,000 and the stock price fell accordingly....$12 1/4 to $8 9/16. There was a quick snap back in the stock on 2/25/97 (OBV; (14) 21,430,000 and falling) to $12 1/8.
3) Given (i) the current company fundamentals and (ii) that the current price level is 19% ABOVE the 200 day MA price, it appears to me that a test of the 200 day MA must occur. If this price test occurs(or even goes below the 200 day MA) while the OBV turns very negative, this would signal a strong BUY signal!
If I am right, the price and OBV movement should occur during the next 45 days. The trigger events (IMO) might be (i) the annual stockholder's meeting April 7, (ii) A possible warning by the company, (iii) the industry Brainshare show and possible rumors of a late release of NetWare 5 or (iv) other unknown company or industry "News" that will spook the investors to sell.
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To summarize, the OBV is a very good indicator to use to follow the supply and demand volume trends. You want to BUY when the OBV is negative and "Blood" is in the street. You usually want to SELL when the OBV peaks (ie. sell into strength) and the story 'theme' has changed but is not yet recognized by the street.
Just one investor's opinion. Hope it helps you in reading those tea leaves.
EKS |
