Making Smarter Investing Easy.

Exploring the mechanics behind the behavior:

12/31/04 - Who's trading now? Here's an X-Ray of trading activity on the NYSE.

11/26/04 - "Holiday Trinning"

Rather than trimming your home for the holidays, we thought that an exploration into the trin would be welcomed departure from the norm. Below are graphs that highlight the trin for the SP500. First, a comparison of the quarterly and semi annual moving averages are displayed. Then rather than using simple moving averages of the raw data, the daily closing trin values are converted into quarterly and monthly z-scores which are then summed to produce oscillators - 2 month and 8 day sums.

However, here's a different view of the same information contained in the trin. The number of advancing and declining issues in the SP500 along with the up and down volume for each day are used to create this thrust indicator.

Here's the classic TRIN for the SP500.

And here's the statistical representation of the SP500's TRIN.

11/16/04 - Who do you think knew what when? The following charts show when traders spend money on index options. These graphs show the value of the options traded throughout the day. It's fascinating to correlate the spikes in expenditures to the timing of market moves. These are the only such charts available anywhere on the web. Click on this link to view 8 of the most actively traded index options .

11/15/04 - NYSE Whose Buying and Selling? The two graphs below show specifically the order flow into the NYSE. As reported by the NYSE the orders flowing into the exchange are tallied every 5 minutes and the percentage of buy orders is shown in the first graph. The second graph displays the percentage of sell orders but these are split into two categories. The sell orders are split into sell orders and short sale orders. These two percentages plus the buy order percentage total 100%. Currently, the buy orders outpace sell orders 2:1 over the last three days. Additionally, there are currently more short sellers than actual sellers, but by only 2%.

11/11/04 - NYSE Specialist trading activity. Here's another classic case in which studying what people do rather than listening to what they say, illustrates a proven strategy that works. This graph illustrates the behaviour of professionals. As prices dropped in July Specialists were net buyers each week, but in August when new lows were being made they didn't panic and sell into weakness. They in fact bought more in two weeks than they did during the whole month of July. At the lows in August they bought nearly 135 Million shares only to sell them all as prices rebounded to higher levels. They sold 200 Million shares at a profit after they "doubled down" in August. In addition, they're still net long 200 Million shares from 2004 plus another 100 Million from 2003.

In addition, last year's data shows that they bought approximately 50 Million shares near the beginning of December 2003. Hypothetically, if they were to wait one year and one day, they would qualify the sale of stock as a long term capital gains and nearly double their return on investment. Currently, the stock market is up 10.8% from 1060 last year. If they hold on to the stock, they will drop from a 30% tax bracket down to a 10% tax bracket and save another 20%. It's only another few weeks now before they need to do any selling. Would you wait a couple weeks to save 20% or more on you income taxes?

11/10/04 - SP500 3 day range analysis. Below is a chart that shows you the 3 day highs and lows along with the 3 day sum of trading volume. In addition, there is a plot that shows you the 3 day range. Yesterday, the SP500 gave us a statistically significant low 3 day range (10.5). In analyzing this pattern, 12 occurrences were found in 2004 and only two breakouts produced runs. Basically, the classic "head fake" occurrs 10 out of 12 times. Now armed with this information, you decide how you want to play the next three days.

Second, those of you who want to know how to set your stops. This chart can be a useful guide as is shows you the three day volatility. The average 3 day range for the past 260 days has been 19 +/- 6 points. Interestingly, the futures margin matches these statistics. The difference between the initial margin and the maintenance margin in the SP500 Emini is $800, these statistics show $950. Traders need to accept that anything can happen within a 20 point range before a trend is apparent. Another way of saying this, is that the noise level in the SP500 is 20 points. BTW, the statistically low 3 day ranges are below 10.5 points and statistically high 3 day ranges exceed 33.3 points.

11/5/04 - SP500 float analysis. Float Analysis was developed by Steve Woods and the explanation for this type of analysis can be found on his website floatanalysis.com. Where he has applied this analysis to individual stocks, we thought it would be interesting to see how this type of analysis works for the SP500 index.

Below is a chart that plots, the weekly highs and lows for the SP500 index along with the weekly volume and the float derived price channels. Float derived price channels simply represent the maximum and minimum prices for a given period. Each period varies in the number of weeks because the period is determined by the current number of shares available to trade - the float. The float for the SP500 index is simply the sum of the 500 component stocks float. The period is determined by accumulating the weekly volume in reverse until the total accumulated weekly trading volume equals the current float. (That means working right to left on the chart rather than summing volume from left to right.) Then the high and low prices for that range is determined and is plotted as the Float Max and Min. This period has been named by Steve Woods in his book "The Precision Profit Float Indicator: Powerful Techniques to Exploit Price and Volume" as the Float Turnover. When a float turnover high or low has been penetrated, his interpretation is that prices are ready to run. Currently, the SP500 index has penetrated its Float Turnover High this week.

If you don't have the individual float history of the 530 stocks that were included in the SP500 index over the past two years, the number of weeks that constituted a float turnover fluctutated between 30 and 35 weeks. Here's an alternative method for you to create your own float turnover price channel. A much simpler method to compute these float turnover highs and lows would be for you to create a simple 33 week, or a 9 month, price channel.

And for comparison, here's the DJIA float analysis. BTW, the number of weeks varied from 52 to 79. So, if you wanted to create your own price channel you would need to find the 78 week high/low. Notice that the DJIA hasn't penetrated the Float Maximum price yet, but volume increased dramatically this past week as the previous highs were taken out.

10/22/04 - Here's another unusual view of the DJIA.

10/10/04 - Here's a view of the NYSE's net volume. Each day the difference of the up and down volume is accumulated to the previous total. This is plotted along with the SP500 cash index. Please note the two divergences outlined in the chart.

10/6/04 - Another perfect storm is brewing. The SP500 internal metrics are hinting that another major turning point is in the offing.

10/4/04 - Let's review the fourth quarter's performance history and October's. It's hard not to be bullish with statistics such as these. Since 1995, 6 out of 9 years produced highs that were 10% or higher.

And here's October's track record.

10/1/04 - WOW! Do current prices make sense given the amount of daily net volume traded? Below is a graph that shows you the 200 day moving average of the net amount of trading volume. This is a unique view and let's first explain precisely what this graph is showing. Each day is displayed with the net amount of volume traded for the previous 200 days. Currently, prices are holding extremely well despite the deluge of down volume this year. In 2003, prices were valued around 900-950 with this amount of volume. In 2004, prices just won't go down.

As a caveat, notice how little down volume accompanied the massive price slides in 2000 and 2001. The first drop from July 2000 to Nov. 2000 only saw a slight dip in net volume. The from Jan. 2001 to April 2001, the net volume finally showed some negative volume. Only after prices dropped 40% off of the 2000 highs, can you see a rapid increase in down volume from May 2002 to Sept. 2002 producing a net -1.5 Billion shares along with a 30% decline in prices.

In contrast to this, in 2004 we're seeing a larger increase in down volume (-2.0 Billion shares) and prices are only 5% off their highs. Second, notice the massive amount of up volume in 2003. By all rights, this should have projected prices past 2002 highs, but this intense wave of buying still didn't cause prices to penetrated the highs of 2002. Third, notice the series of prices when the net volume crossed the zero line. There are roughly 10 to 15 such crossings. Starting in 1999, these crossings produced higher prices, then in 2000 these crossings produced successively lower prices. Perhaps with futher study, this series of prices generated by these crossing can be correlated to Bull and Bear markets. So if the down volume increases to the point that it crosses the zero line, then it appears the the price will be first time greater than the previous crossing (940). Maybe this will mark the beginning of the next bull market? But first prices need to drop one last time, or least down volume needs to increase.

This chart raises many questions with regards to the dynamics of price and volume, but as always, it's your perception that will determine your future. Do you see the glass half-full or half-empty? However, this chart begs the question, how are prices able to stay so high amidst so much down volume? Why is their so much elasticity between supply and demand? Are prices being artificially inflated and by whom?

10/1/04 - Oh what an exciting year it's been. Here's a look at the cumulative sum of daily net volume from the NYSE. After nine months of trading prices are slightly up fo the year, and interestingly so is the amount of up volume.

10/1/04 - How does the last month of a Presidential Term look for investors? Here's a summary of the past 6 terms.

9/30/04 - What two patterns do you see? Below is a graph of the NYSE intra-day. Both price and net volume are plotted using a 1 minute period. There are four ovals which identify the remarkable two patterns. Notice that these patterns produce short lived upward price movement. In addition, another similar characteristic is that they broke the previous highs. Will the most recent pattern on 9/27/04 cause the high of 9/22/04 to be penetrated? It already caused the high of 9/24/04 to be penetrated. So will the Presidential debate generate a double top and a penetration of the "Double Repo" by the end of the day? This morning it looks as though the market is going to make a run at closing above 1122.94 on the SP500 at the close, which would indicate the Bulls have won the battle. Ironically, today's the day the battle will be decided, which is before the debate even begins.

9/27/04 - The "Double Repo" drama comes to an end. Will the current "Double Repenetration" in the SPX continue to be a valid pattern? Mr. Joseph DiNapoli coined the phrase "Double Repenetration" in his book, "Trading with DiNapoli Levels". Below is a chart that shows the current status of the current "Double Repo" pattern. If the last price of September 2004 closes above 1122.94 in the SPX, the 3 month old price pattern is cancelled and the Bulls win. If the price is lower, then the Bears will attack. In just a few days, the battle will be won.

9/7/04 - What will prices do with 2 months remaining in this Presidential Cycle? Let's review history for a clue.

9/3/04 - SP500 futures Trading Activity. If there weren't enough facets to market analysis, here's an unusal view. Generally, trading activity is defined by trading volume. More volume equals more activity. However, in the chart below we explore another definition of trading activity using a another quantity - tic volume. Total tic volume tallies the number of price changes that occur throughout the trading session. So as in any metric, the question is how do we identify extreme activity?

We generally rely on converting raw data into statistical z-scores to visualize activity. The method used is to first compute the 60 day average (one quarter) of the daily total tic volume. Then each day is converted into a 60 day Z-score. Then the previous 8 and 21 days (week and half, and monthly) z-scores are summed to produce the following plots. It's interesting to see how highly correlated tic volume activity is to price. Tick volume rises at lows and decreases at highs. Another observation is how consistent this correlation has been since 9/11/2001.

As you'll see from the following 5 charts presented, these data present a clearer and more precise interpretation of how activity in the market can be identified, which leads to better identification of intermediate trends.

Now let's examine the net tic volume z-scores. The net tic is computed by subtracting the total number of down tics from up tics. Notice how these plots aren't as smooth, they're more jagged. However, the chart tells the same story and has the same correlation.

Now compare the chart above to the NYSE's trading volume z-scores (monthly basis).

Or compare it to the NYSE's daily advancing/decling issues based on Z-scores.

Or compare it to another internal metric of the NYSE - the tick.

7/25/04 - With the Presidential campaign officially kicking into high gear this week, here's how investors view the remaining 6 months of the Presidential cycle. Notice how the stock market doesn't do much during this period. But the question remains, will President Bush's current term in office be recorded in history as the worst 4 years for investors? Currently investors are down 24% from the prices set on election day 11/7/2000.

Below is how all of the Presidential cycles compare against each other. Notice that President Bush has the worst record in the last 50 years.

Below was how it looked with one year remaining, 6 months ago. Of the past 12 Presidential cycles, 9 managed to post gains during the last 12 months of the term, while 2 broke even, and 1 lost. Currently, (see chart above for view of entire Pres. cycle) it's not looking good for investors, but relative to Nov. 2003, investors are still slightly ahead by only 1%.

7/6/04 - How are we doing? Let's compare the daily, weekly, and monthly averages. However let's just compare the daily, weekly, and monthly high and lows. The following graph depicts the 6 day moving average along with the 6 week and 6 month moving averages. These are not just simply 6 day, 30 day, and 126 day moving averages. For the weekly plots, the average of the past 6 week's highs and lows are averaged while for the monthly plots, the average of the past 6 months monthly highs and lows are plotted. Hopefully, this chart gives you a new perspective.

6/18/04 - Here's how an SP500 day trader looks at each day. Generally most investors view charts with only one view or perspective on prices - the actual prices. Below is another perspective which is probably more important if you're a day trader. The following chart shows you how prices moved relative to the opening price (9:30 AM ET) and shows you the price action of only the RTH (regular trading hours) trading session (no globex prices). The chart hints that only 1 day in 30 is currently straining investors' financial limits when a margin call is triggered. Currently, margin calls in the SP500 futures are triggered when the price changes 18 points or more. For more details, click futures margins .

6/16/04 - NYSE Program Trading has really taken off. Notice that it now represents more than half of every day's trading volume! So the question Wyckoff traders (price and volume analysis) need to ask is, "does reported volume truly reflect demand?"

Take a Look inside the SP500 cash index (SPX) - It's all about extremes. Here's a rolling monthly view (21 day period) of the SPX that counts the number of higher highs (HHs) and lower lows (LLs). A higher high is when the current trading day's high is higher than the previous trading day's high while a lower low is when the current trading day's low is lower than the previous day's low. The lookback period is 21 days and the graph displays the total HHs, LLs, and the net difference. You could study this chart many ways, however, here's one particular unusual observation. Look at the raw HHs and LLs crossing the +16 line.

Notice that the pattern of extremes was LHLLHH. The point to made here is that a speculator could make the guess that the next extreme would be a Low which would imply a lower prices from current levels. The problem is it that it would be simply a guess as there is no statistical evidence that this pattern truly exists. However, if rather than identifying which category crossed the +16 you created a series that uses a stricter rule of recording each hit of the +16 line the resulting series would favor a Low. In this case the pattern would be LLLHHLLLLHHHHHHHHHHHHHHHHHH. In this case, the odds favor a low anytime soon.

Of course, if a Low came next it would imply a drastic drop in prices as the SPX would need to record +16 lower lows in a 21 day period. The current level of lower lows is +9 so the market would need to record 7 additional lower lows. At an average of -7.4 points per lower low (for the most recent 60 lower lows), that puts the SPX potentially -52 points lower when the first Low occurs. And if you speculate that a string of Lows will follow then -52 points represents the minimum downside risk from 6/3/04.

Now if you're a "bull" than reaching a another +16 HH is only 5 days away. And if you factor that the average higher high is +5.7 points (from most recent 60 higher highs), then the upside target could be +28 from 1124, or 1152. So the current future expected range is 1152 to 1072. If you are an option trader, this information could be quite useful. And if you're simply speculating on current market direction, then these facts help to access your risk. Currently, the market is telling us that the likely range is 28 points up to 52 down. Now you can make a smarter decision as to which trade to take given these targets and these likely price objectives. Unfortunately knowing this raises numerous questions such as should I lighten my position, increase it, exit or hold exiting longs, initiate shorts, use options, switch to a different asset class, start a hedge, exit a hedge, use other derivatives, or simply stand aside.

This demonstrates how you could apply this information to assist you in creating a forecast. Generally, when technical analysts use indicators they are waiting for a change to appear or a level to be hit before they initiate any new trading plan. But more imporantly they generally can't assess the upcoming price range. So you could enter a trade based on the signal's trigger but you're unaware of its potential. Wouldn't it great if you could decide to pass on a signal because the potential reward wasn't worth the risk? Well, this approach to accessing the market's potential gives you that insight so that you can decide if the future price range is worth the risk. With this type of new forward looking information you can anticipate the future price range and setup a trade accordingly. Remember the more you trade, the greater the odds are that you will lose. The Small Investors Software Company is all about helping to make smarter investment decisions that enable you to identify more profitable opportunities. Contact us if you're interested in receiving our price projections and strategies to assist you in maximizing your trading potential.

Quarterly count: The number of days that the SPX made higher highs and lower lows in a 60 day period.

Is it a bull or bear wave? Is it a "bull" market or a "bear market rally"? Who cares? There is much debate regarding how to name each price wave in the market, and as is true in life, there are two ways of looking at everything and in this case there's always two ways to classify each wave. In the end, naming a price wave correctly really doesn't matter if you make money, but identifying it correctly helps you to establish and maintain your discipline. Well, this next chart attempts to help formulate a different definition of a bull and bear market by visualizing the ratio of points made by higher highs and lows for the previous rolling 60 day period (a quarter of a year). The difference in the number of points between the previous day's high and the higher high is used in computing the 60 day average of those occurrences. The same computation is made for calculating the average number of points that a lower low made from the previous low in a 60 day period.

As you can see in the graph below, "bull" runs demonstrate a strong propensity for prices to reach higher when making higher highs than the number of points going lower with lower lows. The ratio increases during "bullish" periods and decreases during "bearish" periods. According to this graph, there have been numerous "bullish" and "bearish" periods since the year 2000. However, what's interesting is that the "bullish" waves tend to end when the ratio of the difference in prices between HHs and LLs gets above 1.25 and the "bearish" period ends when the ratio is near 0.6. Another way to interpret this information is to note that if the ratio is below 1.0 it's "bearish" and if it's above 1.0 it's "bullish". Currently, the ratio is indicating "bearish" but it is near the critical 0.6 termination ratio. Another way to interpret this ratio is to use another value other than 1.0 as the dividing line. If the average of the series is used then 0.96 would be the line of demarcation. However, if a frequency histogram were created, the skewness of the series would be apparent and the median value of 0.914 could be line of demarcation. Essentially, the median value of 0.914 represents the value in which the series is divided equally into two halves. 50% of the values are above and below the line. So when the ratio is above 0.914 you should be buying and when it is below 0.914 you should be selling. Currently, the ratio is below 0.914. So now you know what to do. As for naming the current wave, well it's rather an easy interpretation now that you know prices are going up while the ratio is bearish.

SP500 Charts