Stock Chart T2108 Indicator

Posted by downtowntrader | 6/23/2008 10:00:00 PM | 0 comments »

Stock Chart Analysis T2108 Indicator

Worden Telechart T2108 Indicator (% Stocks Above 40 Day PMA)

While I've been bearish the markets for several weeks now, I am starting to see some bullish signs. I think there may still be some near term weakness, but I am starting to think the markets will mount another decent rally in the intermediate term. Several of the indicators I watch are pressing towards lows commonly seen at bottoms and any weakness over the next few days will get them there. However, there is a chance that if we see enough strength in the next few days, it will not allow the markets to get truly oversold, thus delaying any bounce, and possibly setting up for a stronger move lower.

One of the charts I watch for bottoming in the markets is Worden's Telechart T2108 indicator. This indicator measures stocks trading above their 40 day moving averages. It's a percentage based oscillator and as such, is measured from 0% - 100%. The levels I look for are 80% for topping patterns and 20% for bottoming patterns.

This is not to say that I follow automatic buy or sell signals when it reaches these levels, but it definitely puts me on guard. In the chart below I highlighted the last three years and the occurrences of the indicator falling under 20%. In green, I superimposed the the S&P500 via the SPY ETF. Notice how a bottom occurs almost every time the indicator falls under 20%. There are a few cases where it takes a little longer, or fakes a little, but several weeks out, it has been a very reliable indicator.

The indicator is not yet under 20%, and it could spend a few weeks under 20% if it gets there, but what is important to note is that the markets are indeed approaching oversold levels and as such, it wouldn't make much sense starting to go crazy shorting now. Unless of course, the markets head higher too soon, which would offset some of the "oversoldness" of the markets and provide great shorting opportunities. One of those two scenarios should unfold over the next month.

Good Trading,