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Strategies & Market Trends : Point and Figure Charting -- Ignore unavailable to you. Want to Upgrade?

To: iGregor who wrote (5096)	7/25/1998 5:19:00 PM
From: Smooth Drive	Read Replies (1) \| Respond to of 34811

TO: Fellow P&Fers SUBJECT: OVERBOUGHT/OVERSOLD (INDIVIDUAL ISSUES) I've been studying various so-called overbought/oversold indicators and I thought the thread might find some interest in how it relates to the DWA site. As DWA cheap and box seat participants know, on the right side of all DWA charts are the words BOTTOM, MEDIAN and TOP. Tom has previously explained that they use these as an indication of overbought or oversold. For instance, say the median is at 50, the bottom at 40, top at 60 and the current X or O is at 43. Then we are in the 21 to 40% overbought range. If the current X or O is at 35, then we would be in the 41 to 60% oversold, and so on. DWA uses a 50-day MA, and their code pounder throws in a dash of volatility and three deviations from the mean to create the ranges. They also lag the count (they don't update the ranges daily). You will recall from stat 101 that 3 deviations puts approximately 99.7% of the population within + or - of the mean. The basic standard deviation formula can be viewed at equis.com. If it's funny symbols to you and you never had stat, we could always do a simple 10 DMA as an example of how SD is computed if someone asks. So, want to look at a 50 DMA with 3 standard deviations? You can set it up at cbs.marketwatch.com. Just put in the symbol and press the Get Chart. The center line is the median and you can see the top and bottom ranges. You'll note that I've included the 13 DEMA (which I always use), RSI at 9 (one of the confirming indicator's Bollinger suggests) and MCAD at 5, 25, 13. The DWA site momentum indicator is based on 5 and 25 days but it doesn't always parallel this MCAD setting. When the fast line (green) crosses above the 0 then the 5 day is above the 25. When it goes below ---- you get the picture. The smoothed 13 is another discussion. I think the folks at Clear Station clearstation.com provide a decent overview of interpreting the MCAD. In a nutshell, if you like the DWA basis for an overbought/oversold indicator, and you want to view up to date data, you can do so at the free CBS site using Bollinger Bands. BTW, Bollinger prefers to look at the ranges as showing whether prices are high or low on a relative basis. Bollinger also prefers 2.5 standard deviations at 50, rather than 3. I currently have no better system to offer but, there are many interpretations from where a stock is positioned within the bands and to what they may or may not do. A stock can be highly overbought but if it is up trending, that is where it will stay. Same with a down trending stock in the oversold range. I'm currently enjoying my study of BB's. They may, as Dave Horne suggests, simply show the obvious. But sometimes the obvious is what one needs to see. I'll do my own research and make up my own mind as to their use, or lack thereof. Those with an interest in BB's should look at equitytrader.com. Have a good weekend and stay within 1 standard deviation (only 68%) of political correctness. Take care, Eric