Our indicator is very simple to use indeed. In fact, we strongly believe that any person can view this indicator with ease, and within seconds, confidently decipher exactly what is going on in the market, and how to trade it [long or short or neutral]...
This is thanks to the fact that ‘behind’
this seemingly simple looking indicator is an immense and highly
intricate amount of computerized analysis, which tracks and analyzes the
‘trends’ in each of the 30 stocks that make up the Dow. This is done
every day. Through ‘discovering’ the trends in each of these stocks, we
know how many are trending up and how many are trending down.
For instance, on any one particular day,
only 20% of the 30 stocks may be trending up. This is a good sign that
the market has cleared out the sellers to a point where most stocks are
now trending down. At these points it is expected that the market will
soon reverse and begin a rally. This is what we look for when the
oscillator is low, showing that only a few stocks are trending up,
representing a good time to prepare for a buy [long] opportunity.
Similarly, on any particular day, 80% of
stocks may be trending up. This is a good sign that the market has
almost reached its peak, and a large number of investors have jumped on
board a recent surge/rally in the market, to a point where most stocks
are now trending up. At these points it is expected that the market will
soon correct itself and reverse downwards. This is what we look for when
the oscillator is high, showing that the majority of stocks are trending
up, representing a good time to prepare for a market fall, or ‘shorting’
opportunity.
As you will know from earlier on in this
manual, the Dow Jones is an index, which measures the overall
performance of the 30 leading stocks which make up the New York Stock
Exchange [NYSE] and Nasdaq. Examples are: Coca Cola, IBM, Microsoft,
Home Depot, Boeing, McDonalds, Caterpillar, Intel, Disney, etc.
By analyzing the underlying 'trends' in each
of these 30 stocks, we end up with a single % figure which tells us how
many [in percentage terms] of the 30 stocks are trending up, and how
many are trending down. For example, on any given day, assume 12 stocks
are trending up. This is the same as saying 40% trending up [ie., 12 out
of 30 stocks trending up]. Each day this % changes. We further
re-calculate this % by applying a 'weighting' [this is the complicated
bit, but you do not need to understand the process - it is completely
automated], and the final result is plotted on our indicator as shown
above.