Getting Closer to a Bounce

Helping Institutions and Ordinary People Invest Better by Focusing on Risk Control

Posted on 13 November 2007 by David Merkel

Over at RealMoney.com, Jim Cramer occasionally talks about the “oscillator” during times of market stress.? Well, I will offer you my guess at what the oscillator is: a 10-day moving average of NYSE & Nasdaq up volume, less NYSE & Nasdaq down volume.? When that figure gets too high, the market is short term overbought, and when that figure gets too low, the market is short term oversold.? We are close to that oversold level now.

That doesn’t mean that the market is a long-term buy, but that sellers are getting short-term tired.? As the market has fallen, my own cash position has shrunk from 17% of assets to 11% of assets.? I have added gradually to out-of-favor positions, and will add more if the market declines further.

Miscellaneous note: some readers asked what relative strength figure I use.? Typically, I use 14-day RSI.? Why?? It’s the default on Bloomberg.

2 thoughts on “Getting Closer to a Bounce”

Dave says:

16 November 2007 at 1:15 am

Hello,

I would like to point out one thing regarding your Relative Strength figure. RSI is different from RS. Relative strength measures how strong or weak something is either from a benchmark like the SP500 or relative to a universe. For instance the IBD RS rank is relative to all the stocks in the William Oneil Database. Or you can measure your stock versus the SP500. If the ratio of your stock/SP500 is going up your stock is stronger than the SP500 and vice versa.

The RSI is the relative strength indicator developed by Welles Wilder and it measures a stock relative to where it was X periods before. So it is an overbought oversold indicator and Relative Strength is not.

Sorry to get technical. Your blog is great btw.
David Merkel says:

16 November 2007 at 1:40 am

Very good, I learned something new. Now you know why I am not a technician, though I have a few small technical tricks in my bag. Thanks for posting.

Comments are closed.

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