Yes, we are oversold

Here is a daily chart of SPY with from top to bottom William %R, TRIX and RSI. I have circled in green the last lows for TRIX and RSI and these go back to last July! These indicators are not standard, they are adaptive and smoothed but the actual ones will show something similar!


So yes, we are currently oversold and the last time it was that bad, we bounced back 6% in 5 days. So there is hope! On the other hand, macro conditions are not exactly conducive to a big bounce!

The Value of Support and Resistance Lines

The move in oil today is the perfect illustration of why it is valuable to have an idea of where the price will "stick" in the coming hours. Drawing support and resistance line based on previous day prices is the easiest way. The formula for calculating the Pivot Point and the Support and Resistance line is available on the Internet. I have programmed Amibroker to display them automatically in my charts at the beginning of the day. Below is today's price action on the oil future market.

The Pivot Point for the day is in gray, the support lines in red. Resistance lines do not appear as they are above 100. The red circles point out congestion areas and support where you can tell that there was some hesitation on the direction. It is not always that clear cut, but these lines usually offer some guidance!

Other Useful Indicators

Amibroker allows you to display many other useful indicators such as Fibs. Below are possible retracements on SPY from the low in 11/30/2010 to today:

Another useful tool is the Regression Channel - indicates a trend channel. Below is SPY from end of August to today.

The trend is clear!


There are too many tools to mention them all. Amibroker has a demo version you can download for testing. For EOD data, you can use a provider like Yahoo. I use RT data from DTN IQ for stocks, futures, options and FOREX. It works well with Amibroker and I can stream up to 500 symbols at a time (more than I need).

My Favorite Indicators

I use the Amibroker software to draw my charts. I have found it to be the easiest to use and customize. They have a large database of indicators and new ones are created everyday by users. The 2 sets I use the most were created by other users and I have made some modifications. The first set applies an Inverse Fisher Transform to widely used indicators - RSI, DeMark REI, Double Smooth Stochastics and Volume Flow Indicator. What I like about the Inverse Fisher Transform is that the signals are usually clearer than the original indicator. Below is a small example - this is TNA today in a 5 minute chart:

The red line is DeMark REI, the blue line is RSI, the green line is the Double Smooth Stochastics and the white line is the Volume Flow Index. Going below the middle line indicates a downtrend and going above the opposite. Both REI and RSI give a good sell signal right before 11:00 AM and an early buy signal around 1:30 PM (13:30). The DSS gives some additional entry signals following the general trend. The VFI lags but can be used to confirm.


Another set of signals I used was created by 9Trading. If you use Amibroker, you can purchase a set of indicators from them. The set that I used is call Saturn and it seems to give some good indications as well:

The red line is a short term indicator, the yellow one a medium term one and the grey one is the long term trend. Once again, going below the middle line is bearish while going above is bullish. Today around 10:50 AM, all 3 indicators go bearish for a good entry signal. The short term indicator goes bullish again around 1:30 PM while the other 2 lag behind, the medium term one going bullish only after 3:00 PM. The green line is an unmodified Double Smooth Stochastics that can be used for re-entry exit signals. I find it to be a bit to erratic but sometimes generates good signals.

The top part of the chart display prices, moving averages, Bollinger bands and Parabolic SAR.