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Tuesday, June 15, 2004
Good evening friends,
Market Recap
The market enjoyed another up day today bolstered by good economic news before the bell. The Indexes disregarded yesterdays low volume sell-off and advanced today with the Dow up +45 points and the NASDAQ up +25 points. However, like sell-off, the volume was light on the rally. We continue to be in a trend-less, back and forth market that is impossible to read from day to day. Until there is a clear resolution to this indecision, all we can do is guard our cash, hedge longs with shorts, and possibly day trade momentum stocks for small gains. Not much else we can do at this point. The market will move when it wants to, and you can be sure we will be ready when it does. For now, the market moves for nobody.
Asking for Directions?
The saying goes “men never ask for directions”. Somehow we know by instinct which way to go. Either that, or we are simply too proud to admit that we are lost. I have to admit, I am one of those hard heads that will not stop and ask. And when I finally do, I only half listen to what they are telling me. Come on admit it, if you are a male, you are probably at least a little like me.
When it comes to stocks, I do not mind asking for directions. When my money is on the line, I want to know which way to go. I will ask the chart which direction the stock may go. One indicator I use for this purpose is the ADX (the directional indicator).
The uneducated investor does not even know to ask for directions. One reason is because he does not know where to ask for them. Most of the herd is out there guessing the direction on a daily basis; they put money into stocks that are in clear downtrends because they view them as “cheap”. They do not know that charts and indicators can give them advance notice of a stocks movement. Charts are like having a map of the market for you to consult when you are not sure of the direction.
Average Directional Indicator
Continuing our indicator series tonight, let's talk about the Average Directional Indicator (ADX). The ADX is another oscillating indicator. It moves up and down with the strength of the trend and fluctuates between 0 and 100. Even though the scale is from 0 to 100, readings above 60 are rare. Readings below 20 indicate a weak trend. Readings above 40 indicate a strong trend. The indicator does not take into consideration if a trend is bullish or bearish, it will only measure the strength of the current trend. A reading above 40 may indicate either a strong downtrend or a strong uptrend.
The indicator is very simple. If the ADX line is pointing up, the trend is strong regardless if bullish or bearish. A flat ADX line means there is no direction and the stock is not trending (it is “trading flat”). This indicator helps us access the strength of the current trend, no matter which direction the stock is going.
The ADX is further broken down by two separate indicators; they are referred to as DI+ and DI-. (DI) is short for Directional Indicator. These two lines will fluctuate more than the ADX (solid black line) indicator. Both indicators are also used to show the strength within a trend. DI+ is normally a green line while DI- is a red line. DI+ shows the positive strength, while DI- shows the negative strength. If DI+ is on the top of DI- with the ADX line trending up, this is a signal to trade long. If DI- is on top of DI+ and the ADX is pointing up, this is a signal to trade short. The key is, ADX must be trending up. If it is not, then the indicator is telling you there is no clear direction (the stock is trading flat).
The next time you look at a chart, look at the ADX for direction. Those that do not pay attention to direction are likely to end up lost.
As always, thank-you for your support past, present and future! Have a great night everyone; we will see you all Tomorrow evening.
OTC BB Watch List
- LRSY: Be careful, normally no volume but looks ready to run now
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