The Chande Trend Meter (CTM) is a flexible tool for analyzing absolute trend strength across all time frames. I will illustrate its application using a list of 15 stocks that Jim Cramer of CNBC called the "anointed ones", stocks that are likely to go higher because they have a strong institutional fan base on Wall Street. I will show that CTM can be combined with StockChart's SCTR to find the stocks on Cramer's list. I will also show that CTM scales sensibly across time frames, from intra-day to monthly, whereas the SCTR is only computed using daily data and re-plotted on weekly and monthly charts. (The SCTR rankings are undefined for intra-day data.)
Chart 1: A candle-glance summary of Cramer's 15 Anointed Stocks.
The Cramer 15 At a Glance
Jim Cramer pointed to the following 15 stocks in alphabetical order: Alibaba, Adobe, Align, Amazon, Apple, Arista Networks, Boeing, Home Depot, Lam Research, 3M, Nvidia, Paypal, Square, VMWare and WalMart. He gives a brief analysis of why they are loved on Wall Street and it is worth a quick read. You can see their chart thumbnails grouped together in Chart 1 above. I will now do a trend analysis of these stocks using SCTR and CTM.
Analysis with Daily SCTR and Daily CTM
I won't fault you if you think the first rule of stock picking is to select companies with names at the start or end of the English alphabet. In Chart 2 I show the 15 stocks with their SCTR rank and the Daily Chande Trend meter values. A little work with a spreadsheet shows that the range of SCTR values was 69.7-99.9 with an average of 92.31. The range of daily CTM values was 88-100 with an average of 92.7. So, the first clue is to possibly use stocks with SCTR > 91 and daily CTM > 91.
Of course, you would still need to narrow the universe or the number of stocks is greater than 15. For example, using all US stocks, 196 met the twin criteria of SCTR > 91 and daily CTM > 91. For example, limiting the exchanges to NYSE and NASD trims the count to 113. Finally, restricting the groups to SP400, SP500 and SP600 drops the count to 42.
Chart 2: Cramer's Anointed 15 with their daily SCTR and daily CTM values.
Weekly CTM plus Daily SCTR
Since the SCTR is only computed using daily prices, it cannot be re-scaled to weekly data. However, the CTM automatically rescales to data in any time-frame. Hence, another way to analyze the Cramer 15 is to combine the daily SCTR with weekly CTM (see Chart 2). The range of weekly CTM values is 88-100, with an average of 92.7. Hence, another search alternative would be SCTR > 91 and Weekly CTM > 91. This search produces a different list than from the search in the previous paragraph.
Chart 3: Cramer's Anointed 15 with their weekly Chande Trend Meter values and daily SCTR values.
A broader search of the NYSE and NASD exchanges with daily SCTR > 95 and Weekly CTM > 95 found four of the stocks on Cramer's list (marked with stars) as you can see in Chart 4. Of course, the computer spits out many other names with the same mechanical criteria, and where Cramer has an advantage is that he can also account for the story behind each selection to narrow his list. We can adjust the search parameters to eventually find all his 15 stocks, but the list then becomes too long to be useful.
Chart 4: We can locate some of the stocks on Cramer's Anointed 15 using a combination of daily SCTR (>95) and Weekly CTM (>95) and still produce a relatively short list. Using smaller values of weekly CTM and Daily SCTR rapidly expands the length of the list. Unlike Cramer, we have no qualitative basis to prune the list.
CTM Scales "Properly" with Time
The Chande Trend Meter scales automatically across time by adjusting to the time frame. The SCTR uses only daily data in its calculations, so for example, changing from daily to weekly data, does not cause SCTR to switch from 14-day RSI to 14-week RSI in its internal calculations. Further, SCTR is undefined for intra-day data. A table to summarize changes in CTM and SCTR for the various time frames using ALGN stock is shown below:
|Time Frame||SCTR||Chande Trend Meter (CTM)|
Chart 5: The SCTR rankings are calculated using daily data and grouped by market cap into Large, Medium and Small stocks for the relative ranks. Note the CTM at 85.29.
Chart 6: On the weekly ALGN chart, the CTM recomputes to 94.85, but the SCTR remains at 99.9, re-plotted on the weekly chart from daily values.
Chart 7: The strong up-trend on the ALGN monthly chart pushes CTM to 100.0, but SCTR remains at 99.9, re-plotted from daily data.
Chart 8: The CTM adjusts to 57.68 on the hourly ALGN chart, but the SCTR is undefined. Observe that the narrowing price range on the hourly chart has pushed the CTM lower towards neutral.
The Chande Trend Meter is a flexible tool for quantifying trend strength. It's internal consistency allows an apples-to-apples comparison of any two stocks or ETFs, regardless of their capitalization or underlying components. For example, large caps can be compared to small caps on the same scale, and bond funds can be compared to stock funds. Similarly, US stocks can be compared to foreign stocks on the same scale.
CTM can be combined with SCTR to have a multi-time-frame analysis or scan of the StocCharts databases. This is useful to reduce the length of scan tables.
Unlike charting, we do not have to discern patterns or make qualitative statements based on our own internal preferences. No two technicians will read a chart the same. However, CTM gives an unbiased measurement of trend strength on the chosen time frame.
The ability of CTM to skip across time frames is not be underestimated. Technicians in particular will see quite different things as the time frame changes, and they may not weigh things similarly (or equally) on different time frames. In other words, CTM weights are internally consistent. Since CTM automatically adjusts to the time frame, intra-day, daily, weekly or monthly ranks will be different using the CTM.
Let us not forget that the CTM is an absolute measurement. Though Wall Street has made hay flogging relative performance, your wallet only recognizes absolute returns, and so should you.
I hope you have enjoyed this mini-tutorial on how to use the CTM. Please subscribe to my blog using the quick link below.
I wish you a most wonderful Thanksgiving Holiday!