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October 2007 Stocks and Commodities Traders Tips


Tandem Studies on Market Movement

Original article was an interview with Dima Vonko
AIQ Code by Richard Denning


The AIQ code for analyzing tandem bullish phases is given below. The author mentions but does not provide a mechanical method for identification of a bullish phase and related correction. Instead he relies on subjective chart reading to identify the turning points for the phase analysis. Since I do not subscribe to subjective analysis and always base my trading on mechanical systems, I attempted to define a bullish phase by using pivot point strength and the special moving average that the author discusses (SMALMT). I used this moving average which is equal to the length of the current bullish phase times 1.5 as a basis for gauging whether the bullish phase was still in place and where the bullish phase might have begun. When the price crosses above SMALMT, a new bullish phase has begun and the subsequent corrections must have lows that do not penetrate below SMALMT. I first applied this analysis to the S&P 500 Index and adjusted the pivot strength so that the second pivot low back from the current date fell below SMLMT and the first pivot low back held above the SMLMT. In addition, the bullish phase definition that I defined requires that the first low pivot be greater than the second low pivot and the first high pivot be higher than the second pivot high. When I applied all these rules to the S&P 500, I captured an overall bullish phase that began 6/14/06 and is still active as of 8/10/07. Within this major uptrend there are two bullish sub-phases (06/14/06 to 02/22/07 and 03/14/07 to 07/16/07) and two corrective phases (02/22/07 to 03/14/07 and 07/16/07 to 08/10/07). As of 8/10/07 the second corrective phase was still on-going. I then applied the same rules and settings to a list of the most active 2000+ stocks to find those that were following the pattern of the S&P 500 index. Of these 2000+ stocks only 54 (2.5%) were still in the bullish phase that matched the S&P 500 pattern as of 8/10/07.

In Figure 1, I show Apple Inc. (AAPL) which is in the top 10% of the 54 stocks with bullish chart patterns. Note that a smaller accumulated-range-ratio-bull (ARRB) indicates a stronger tandem phase relationship. In Table 1, I show the comparison of AAPL to the S&P 500 (SPX) and to Activision Inc. (ATVI, Figure 2, which is in the bottom 10% of the 54 stocks with bullish chart patterns). AAPL is stronger than the SPX because both the prior ARRB (labeled ARRB1) and the current ARRB are smaller than that of the SPX. Also this table shows that ATVI is weaker than both AAPL and the SPX ARRB in the current correction phase because the ARRB is larger than that of the SPX and AAPL. ATVI, in the prior tandem sub-phase, was stronger than the SPX but weaker than AAPL.

FIGURE 1 (click here to view): AAPL (top 10%)-mechanical identification of the major phase and four sub-phases with the ARBB indicator computed for each sub-phase.

FIGURE 2 (click here to view): ATVI (bottom 10%)-mechanical identification of the major phase and four sub-phases with the ARBB indicator computed for each sub-phase.

Table1:

 

 





EDS Code for Tandem Studies on Market Movement:
Tandem Studies .EDS

 

 

 

 

 

 

 

 

 

 

 

 

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