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How Can I Find and Chart International Bond Yields?

StockCharts users can do a simple database search to find symbols for 10-year government bond yields for the United States, Germany, Japan and the UK. Go to the symbol catalog and enter "yield and 10" (without quotation marks). The "and" means that both words are required in the results. Users could also search for "yield and indx" to see all of our index symbols related to yields. The term "indx" insures that an index symbol will show up in the results. 

Chartists can plot these yields on the same chart using the "price - same scale" overlay. The chart below shows a scale ranging from .20% to 3.2%.  German and Japanese 10-yr yields are near the bottom. US and UK 10-yr yields are just above the mid point. The US 10-year yield is the highest of the group. The Japanese and German 10-year yields are duking it out for the lowest. 


Click this image for a live chart

What Is an Island Reversal? (w/video)

An island reversal is a reversal pattern that forms with two gaps and price action in between the two gaps. These gaps tell us that the island reversal marks a sudden, and sharp, shift in direction. Even though they are relatively uncommon, island reversals are potent patterns that warrant our attention. 

The alignment of the gaps holds the key. First, note that a bullish island reversal forms with a gap down and then a gap up. A bearish island reversal forms with a gap up and then a gap down. These gaps overlap to create an island of price action, hence the term "island reversal". The island is above the gaps on a bullish island reversal, and below the gaps on a bearish island reversal. 

The first example shows Chipotle Mexican Grill (CMG) with bearish island reversal. Note the gap up in early January, the consolidation into early February and the gap down in early February. Prices gapped above 696, held above 696 and then gapped below 696 to create the island. Traders establishing long positions on the island are now trapped with losses. 

The second example shows Raytheon (RTN) with a bullish island reversal. There is a gap below 104, a three day stall and then a gap above 104. There were no trades at 104 because of the gaps. Thus, traders establishing short positions on the island are now trapped with losses. 

Which Oscillators are Good for Overbought and Oversold Indications? (w/video)

In general, momentum oscillators with a fixed range are best suited for identifying overbought and oversold conditions. These include RSI, the Stochastic Oscillator and StochRSI. RSI and the Stochastic Oscillator fluctuate between zero and one hundred, while StochRSI fluctuates between zero and one. Momentum oscillators like MACD and the Percentage Price Oscillator (PPO) do not have fixed ranges and this makes it more difficult to identify overbought and oversold conditions. 

The QQQ chart below shows RSI(10), the Slow  Stochastic Oscillator (14), StochRSI(14) and MACD, which is just shown for reference. First, notice that RSI is the least sensitive of the three fixed-range oscillators because there were only two oversold readings in seven months. I even shortened the look-back period from 14 to 10 in order to increase sensitivity. Second, notice that an oscillator can become overbought and remain overbought in a strong uptrend. The Stochastic Oscillator moved above 80 on October 24th and remained above 80 until December 3rd. Third, notice that StochRSI is by far the most sensitive of the three. This is because StochRSI is an indicator of an indicator. 14-period StockRSI is the 14-period Stochastic Oscillator applied to 14-period RSI, which means it is measuring the momentum of momentum.  

There are two things chartists should keep in mind. First, look for oversold readings when the bigger trend is up and overbought readings when the bigger trend is down. An oversold reading in an uptrend signals a pullback. Second, set a trigger to signal an end to overbought or oversold conditions. Each oscillator has a centerline that can be used for such a signal. For example, a move below .20 triggers an oversold condition in StochRSI. This condition ends when StochRSI surges above .50, which puts it in the upper half of its fixed range. 

How Can I Highlight a Shape to Draw a Support-Resistance Zone? (w/video)

Once a shape is drawn on a SharpChart, chartists can use the "fill mode" and "opacity" settings to highlight the shape. This is a great way to draw support or resistance zones on charts, or to highlight a consolidation. Here are the steps:

1.    Create a SharpChart and open the ChartNotes workbench to annotate. 
2.    Select a shape from the icon row at the top left. 
3.    Move to your starting point and click-drag to draw shape. 
4.    Now use the tools on the vertical icon bar on the left. 
5.    Choose the color with the top icon.
6.    Choose fill mode with the second icon from the top (hollow, shaded or solid).
7.    Choose opacity with the third icon from the top and use slider.
8.    Choose line thickness by clicking the icon with short horizontal line.

If you need to activate the shape for editing, click the "select" icon in the upper left corner and then click the shape to activate it. The shape is selected when the yellow handles appear on corners.

The example shows three different shape possibilities. The first is a red shaded box and the vertical icons are shown as they appear with this setting. Notice that the fill icon is red to denote the "shaded". The green box is solid and the fill icon shows a red-blue X. The oval shape is hollow and the fill icon shows a diagonal red line. 

How Can I Shift Moving Averages Forwards and Backwards? (w/video)

Shifting a moving average is not as crazy as it may seem. First, chartists may want to compare the current day's price against the prior day's moving average value. To do this, one needs to shift the moving average forward one period. Second, a 50-day moving average is the average of the last fifty days and some chartists like to show this value in the middle of that 50-day period. This is also known as a centered moving average. 

Chartists can shift (displace) a moving average forwards or backwards by adding a comma and number to the parameters. Adding a comma and a number to a 50-day moving average (50,25) would shift it forward 25 periods, which would put it in the future. A moving average can be shifted back by preceding the number with a minus sign (50,-25). This would shift a moving average back 25 periods, which would put it in the middle of the lookback period (50 days). The chart above shows a normal 50-day SMA in blue, a forward-shifted moving average in red and a centered moving average in green. 

SharpCharts users can also shift indicators that use moving averages. These include Bollinger Bands, Keltner Channels, SMA Envelopes and Price Channels. The example above shows SMA Envelopes shifted forward one period (10,1,1). The extra 1 at the end is the shifting parameter. This lines up the current price bar with yesterday's indicator value. This is helpful if you want to know when today's price action is enough to break above or below the prior day's indicator value. 

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.