Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2008 by Patrick Mikula All Rights Reserved.
One of MarketWarrior best proprietary indicators is the Million Dollar Pivot Finder (MDPF). I am now going to present an intraday 5 minute chart for the Dow Jones using the eSignal symbol $INDU. The first chart below is is a 5 minute bar chart for July 17. This chart displays local time CST. On this day there was two Change In Trend (CIT) signals from the MDPF. The first MDPF signal came just after 10AM local time and signaled a bottom. This is labeled “1″. This CIT signal was just 1 bar off from the exact bottom. The second CIT signal from the MDPF also indicated a bottom and was 3 bars away from the exact bottom. Both of these CIT indicators were very good for short term swing traders.
MDPF July17
The next chart shows the 5 minute chart for July 18. The time is local time and the symbol is the Dow Jones Index eSignal symbol $INDU. There were again two signals from the MDPF and both indicated a bottom. The first bottom signal came just before 9AM and the MDPF signal was just 1 bar away from the actual bottom pivot. This is labeled “3″. Finally the second MDPF signal on July 18 was a failure. The CIT signal came just before 11AM but a bottom did not occur this time. This means that for July 17 and July 18 the MDPF found 3 accurate pivot points and 1 failure on the 5 minute $INDU chart.
MDPF July18
end.
Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2008 by Patrick Mikula All Rights Reserved.
A valuable trading situation occurred this week in the interest rate markets and I would like to bring this to the attention of all traders using the MarketWarrior software. The first chart below shows the 30 year U.S. T-Bond which is a long term interest rate. On July 16, 2008 the long term interest rates had a large decline in the bond price. The bond prices and the bond interest rates, move in opposite directions. This means the large decline in bond price seen on the chart below represents a large increase in long term interest rates. Next we will look at what happened with the short term interest rates.
30yr Bond
The next chart below shows the Eurodollar futures contract which is a 90 day interest rate. This is the December 2009 contract. Notice on July 16 the short term interest rates had a small high to low range and a small down move. This is a dramatic contrast between the large move in the long term interest rates and the small move in the short term interest rates. Whenever this situation occurs there is a very high probability that the short term interest rate is going to catch up to the long term interest rate by having a large fall in the next 1 or 2 days. See the next chart where I point this out.
Eurodollar
This is the same Eurodollar chart shown above. This represents a short term 90 day interest rate. On the chart below I have pointed out the fact that on July 17 and 18 the Eurodollar had the expected large down. This large down move saw the short term interest rates catch up the move in long term interest rates. A large move in long term interest rates, either up or down, that does not have a corresponding move in short term interest rates is a short signal that the short term interest rates are going follow the long term interest rates, either up or down, in the follow days. Hopefully this relationship between short and long term interest rates will be valuable to all our traders.
Eurodollar 2
end.
Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2008 by Patrick Mikula All Rights Reserved.
The chart below shows a 1 minute bar chart for Apple, symbol AAPL. There are two MarketWarrior indicators applied on this chart. The first is the Smoothed Stochastic which is the oscillator line in the subchart. The second indicator is the Square of 9 indicator described in Chapter 3 of our book “The Definitive Guide to Forecasting Using W.D.Gann’s Square of Nine”, I will refer this this indicator as, (Sq9Ch3) . Lets first discuss the Sq9Ch3 indicator. The Sq9Ch3 starts at the swing bottom that occurred at 11:40AM. The “Multiply by Price” setting is set to 10 to accommodate the small price range on a 1 minute chart. The standard support resistance price line of +45 degrees is shown on the chart. This line represents a price move that covers 45 degrees of movement on the face of the Square of 9. The exact price is listed as 174.51. You can see the price moved up from the 11:40AM bottom and made the tops “A” and “B” on this Sq9Ch3 support line.
Next I will discuss the Smoothed Stochastic. When the top “B” started to form, it was obvious that the Smoothed Stochastic was not going to move above the top “A”. This indicator formed a Bearish Divergence between the tops “A” and “B”. The bar chart top “B” was higher than “A” but on the Smoothed Stochastic the top “B” was lower than top “A”. Top “B” is where the Bearish Divergence occurred, and this also formed on the Sq9Ch3 support price level. This double indicator setup is signaling that we should start watching for a down swing to follow top “B”. On the chart below you can see the price did fall after top “B”.
Sq9Chap9
end.
Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2008 by Patrick Mikula All Rights Reserved.
The next unique application for the Moving Average Convergence Divergence (MACD) that I will discuss occurs when the MACD histogram moves into a tight sideways band. The chart below is a 1 minute chart for Apple, symbol AAPL from July 16, 2008. On this chart I have used the letter “A” to mark where the MACD started moving in a very tight band close to zero. I have used the letter “B” to make where this tight band ended. When the MACD moves in a tight band very close to zero it is an indication that a market breakoutt is coming.
MACD 2
The chart below is an extension of the Apple chart seen above. The letter “B” is the same letter “B” from the previous chart, it marks where the MACD histogram ended a tight band close to zero. You can see on the chart below that after the tight sideways band in the MACD histogram ended the market had a string upward breakout. When you see the MACD behave like this you should wait to trade the breakout.
MACD 3
end.
Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2008 by Patrick Mikula All Rights Reserved.
I am going to discuss a couple of unique applications for the Moving Average Convergence Divergence, (MACD) which was developed by Gerald Appel. The traditional uses for this indicator are Bullish Divergence and Bearish Divergence but I will not be discussing these two applications. The chart below is a 1 minute chart for Costco, symbol COST from Wednesday, July 16, 2008. When watching the main histogram in the MACD there will be times when an upward move is strong and the low point between two tops in the MACD histogram stays above zero. When this occurs it is a very good signal that the up move will continue. On this chart I have labeled two times when this occurred as “A” and “B”. In both situation the low point between two tops on the MACD histogram was above zero. Both “A” and “B” are times when you would want to buy this market.
MACD 1
end,
Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2008 by Patrick Mikula All Rights Reserved.
Here is our final example for using the MFI. This example shows a over bought signal on a 1 minute bar chart for Apple, symbol AAPL. When using the over bought signal with the MFI you must wait for the MFI to move as close to 100 as possible. The MFI is an oscillator that movers from 0 to 100. The closer to 100, the better the over bought signal. My personal belief is that only MFI values above 90 should be used to sell short and the closer to 100 the better. On the chart below the letter “A” marks a peak in the MFI above 95. This peak is an over bought sell signal. After this peak in the MFI the price of Apple fell sharply.
Money Flow Index 4
end,
Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2008 by Patrick Mikula All Rights Reserved.
Here is an example of using the MFI with an oversold signal. When using the MFI with an oversold signal you should watch for the MFI to move very close to zero. Having the MFI move below the lower boundary line is not good enough to give a buy signal, the MFI must move down very close to zero before a signal becomes important. The chart below shows a 1 minute chart for Apple, symbol AAPL On this chart the MFI moved down very close to zero indicating the market was over sold, this is identified by “B”. When the MFI turned up, a buy signal was given, and you can see the stock price then moved up.
Money Flow Index
end;
Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2008 by Patrick Mikula All Rights Reserved.
Here is a second example of using the MFI with real-time charts. The chart below is from Tuesday July 15, 2008 and shows a 1 minute chart for Yahoo, symbol YHOO. On this chart the letters “C” and “D” identify an example of Bullish Divergence. On the Yahoo stock “D” is lower than “C” while on the MFI, “D” is higher than “C”. This shows Bullish Divergence and indicates after “D” there should be a market rally. On this chart you can see that after “D” the Yahoo stock had a nice rally.
Money Flow Index
end;
Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2008 by Patrick Mikula All Rights Reserved.
The Money Flow Index (MFI) has proven to be a good indicator for trading on real-time charts. The MFI is one of the best momentum indicators that includes volume in the calculation. If you are using a data set which does not include volume, do not use the MFI. The techniques used with the MFI are the traditional Bullish Divergence, Bearish Divergence, over bought signals and over sold signals. The first chart below is a 1 minute chart for Apple, symbol AAPL from Tuesday July 15, 2008. The chart shows a Bearish Divergence identified by the letters “C” and “D”. The stock price was higher at “D” than “C” while the MFI was lower at “D” than “C”. This means the MFI is falling while the price is rising. This is Bearish Divergence, and indicates a down swing will come soon. After “D” the stock price started a down swing.
Money Flow Index 1
end.
Written by:
Patrick Mikula CTA
Mikula Forecasting Company
www.MikulaForecasting.com
support@MikulaForecasting.com
Copyright © 2008 by Patrick Mikula All Rights Reserved.
Here is another example for the On Balance Volume (OBV). This chart shows the stock, S1 Corporation, symbol, SONE. I have again labeled a bullish divergence using “A” and “B”. Notice “B” marks a lower price bottom than “A”, while the OBV made a higher bottom at “B”. In this situation the OBV is indicating traders are accumulating this stock while it was moving down into bottom “B”. When traders accumulate a stock while it is declining it indicates a strong upswing should start soon. After the bottom “B” the market made a strong upswing as indicated by the OBV.
On Balance Volume
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