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How Can I Make Bollinger Bands and Envelopes Stand Out?

Bollinger Bands and Moving Average envelopes are indicators with two outer lines based on a moving average. Chartists can view these indicators as just lines or really make them stand out by setting the "Style" as "Area". This setting essentially shades the area between the outer lines and colors the indicator, which makes it really easy to see Bollinger Band contractions or breakouts. 

The example above shows Cognizant Technology (CTSH) with Bollinger Bands in pink. In addition, the opacity is set at .30 to make them a little more transparent (and less pink). Notice how easy it is to spot the Bollinger Band expansions and contractions. The Bollinger Bands contracted from early September to mid October as the stock edged lower (from 46.5 to 43). The rally started when CTSH broke above the upper Bollinger Band and resistance on October 27-28.

The chart above shows Automatic Data Processing (ADP) with moving average envelopes (20,2.5). These are 2.5% bands above and below a 20-period simple moving average. Notice how ADP held the lower envelope in October (on a closing basis), and then broke out the third week of October. The lower envelope is now acting as support (on a closing basis). 

How Can I Filter Out Random Noise on the Price Chart? (w/ video)

The stock market has been quite volatile in 2015 and this may be a good time to consider alternative charting techniques to filter out some of the noise. The chart below shows the S&P 500 SPDR with the zigzag indicator set at 5%, which filters out price swings that are less than 5%. There were four 5+ percent swings in the first eleven months of 2014 and three 5+ percent swings in December-January. Clearly, market volatility is heating up. 

While volatility may be fine for day traders, it can make the chart noisy for position traders and investors. Fortunately, there are charting options to filter out some of this noise. Today I will show a Japanese technique and a new twist on a classic technique. 

First up, Renko charts use price "bricks" to filter noise. The example below shows a 2-point Renko chart based on closing prices. Each "brick" is two points and it takes a four point reversal to change direction. This reduces noise in two ways. First, it is a close only chart so we do not use the intraday high and low. Second, setting the brick size at two points filters out all price moves less than two points. This means that price moves less than 2 points are ignored, which is why the date axis is irregular. The day is simply skipped if the price change is less than 2 points. 

The second method is to smooth prices with a moving average. Instead of plotting SPY with the moving average, however, we are going to make it invisible and just chart two moving averages. The example below shows the 5-day EMA and 20-day EMA for SPY. I removed SPY from the chart by selecting "invisible" as chart "Type" in the "Chart Attributes" section. This chart paints a different picture than the one above. Notice that the 5-day EMA moved below the 20-day EMA on 6-Jan and remains below. Also notice that both EMAs are falling. The mid December low appears to mark the next key level, a break of which would forge a lower low in the 5-day EMA. Note that moving average crossover systems are notorious for whipsaws. I would, therefore, just use these moving averages to get a sense of direction. 

How Can I Plot Treasury Yields using the Same Scale? (video)

With lots of chatter regarding the 10-YR Treasury Yield and the yield curve, now is a good time to show chartists how to use the "Price (same scale)" feature to plot yields. This feature is good for plotting symbols that use the same scale, such as Treasury yields and the Bullish Percent Indices. 

The chart above shows the 30-year Treasury Yield ($UST30Y) as the main symbol. I then added the 20-year Treasury Yield ($UST20Y), the 10-year Treasury Yield ($UST10Y), the 5-year Treasury Yield ($UST5Y) and the 2-year Treasury Yield ($UST2Y) using "Price (same scale)" as an added overlay. Also note that I changed the colors to better differentiate between these. Using the same scale makes it easy to compare the yields against one and other. 

As you can see on the chart, the 30-yr yield is the highest, the 2-yr yield is the lowest and the 10-yr yield is in the middle. This is how it should be with a normal yield curve: yields increase along with the maturity. It is also worth noting that long-term yields have been falling since January 2014, but the 2-yr yield has been rising since November 2013. 
 

 

 

How Can I Find the Stocks in the Home Construction Industry Group? (video)

StockCharts users can use the Sector Summary to drill down into sectors and industry groups. This tool makes it easy to see the nine sectors, the industry groups within these sectors and the stocks within these industry groups. Users can find the sector summary in the additional tools section of the righthand navigation column on every web page. 

Continue reading "How Can I Find the Stocks in the Home Construction Industry Group? (video) " »

How Can I Position 10-day RSI behind the QQQ Chart?

Chartists can position an indicator above the main window, below the main window or even in the main window, which puts it behind the price plot of the underlying security. It is easy to compare price movements with indicator movements when the indicator is placed right behind the price chart. The example below shows the Nasdaq 100 ETF (QQQ) with 10-day RSI behind the price plot. 

Chartists can also use the advanced indicator options to change the color and opacity settings. In this example, I am showing RSI in pink and setting opacity at 50% (0.5). Pink allows RSI to stand out, while the 0.5 opacity setting makes the RSI plot 50% transparent. You can do this with MACD, the Stochastic Oscillator or any indicator at StockCharts. 

Easy and Effective Methods to Measure Relative Performance (video)

A member recently wrote in asking for different ways to measure relative performance. This is a great question because relative performance is a very important piece of the investment puzzle. In addition to looking for stocks and ETFs in uptrends, chartists can improve their odds by looking for stocks and ETFs showing relative strength. StockCharts offers at least three ways to measure relative performance. 

Continue reading "Easy and Effective Methods to Measure Relative Performance (video) " »

How Can I Chart the Yield Curve and Compare Treasury Yields?

Chartists can view the difference in Treasury yields using a special overlay on SharpCharts. First, note that we have two symbols that capture the yield curve. $YC2YR captures the difference between the 10-year Treasury Yield and the 2-Year Yield. $YC3MO charts the difference between the 10-year yield and the 3-month yield. Chartists can also use the "price (same scale)" overlay to plot different yields in the same chart window. The chart below shows four different Treasury yields in the main window and the two yield curve indicators in the lower windows. The "price (same scale)" aligns the different yields on the same scale so we can see the differences. The 10-yr and 30-yr yields are above 2%, while the 2-yr and 3-mo yields are below 1%. 

Chartists can also create a custom yield curve by using the minus function on two symbols. The chart below shows the difference between the 30-yr Yield and the 5-yr Yield by placing a minus sign or hyphen between the two symbols ($UST30Y-$UST5Y). This representation of the yield curve is still positive, but it has become less positive over the last twelve months. This means the spread between the 30-yr and 5-yr yields is narrowing. Note that this minus function can be used with any two symbols. 

What is a Bullish Percent Index and How Can I Use It? (video)


A Bullish Percent Index measures the percentage of stocks within a particular group that are on Point & Figure buy signals. A stock is either on a P&F sell signal or a P&F buy signal, there is no gray area here. A P&F sell signal is a Double Bottom Breakdown, which occurs when the current O-Column moves below the low of the prior O-Column. A P&F buy signal is a Double Top Breakout, which occurs when the current X-Column moves above the high of the prior X-Column. The first chart shows Illumina (ILMN) with a Double Top Breakout and the second chart shows Mattel (MAT) with a Double Bottom Breakdown. 

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What is the Difference between a Logarithmic and Arithmetic Chart?

The difference between a logarithmic and arithmetic chart scale can be seen on the vertical axis, which is the y axis. An arithmetic scale shows equal spacing between the chart units. In the example below, horizontal lines are spaced every 5 Dollars and they are equally spaced from top to bottom. A ten Dollar change from 60 to 70 looks the same as a ten Dollar change from 100 to 110. 

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What is the Difference between Adjusted and Unadjusted Data? (video)

First, note that StockCharts users can chart adjusted data and unadjusted data. By default, stock and ETF symbols show adjusted data, which means the data have been adjusted for dividends, splits and other events. When a stock goes ex-dividend, the dividend amount is subtracted from the stock price. StockCharts adjusts the data by adding the dividend back into the stock price, which provides users with a picture of the total return (price change plus dividends). On a total return basis, the Utilities SPDR (XLU) is up some 87% over the last five years. Not bad for old boring utility stocks. 

The price chart shows the dividend adjustments because I added "events" as an "overlay". Putting "all" as a parameter will show dividends, stock splits and all financial events affecting the price. This is a great way to see when a dividend is paid or when a stock split. 

So just how much of a role did dividends play in the total return? Chartists can find out by plotting unadjusted data. Simply precede the symbol with an underscore (_XLU). As the chart shows, unadjusted XLU still sports a nice gain as price appreciated some 53% over the last five years. However, because utility stocks have relatively high yields, the dividend is a very important part of the picture. I would guestimate that dividends accounted for around one third of the total return for XLU over the last five years.