February 2005 – T Theory® Update
Comment February 25 2005
The S&P has bounced off the normal 55 day MA support and is probably headed to a higher high around the late March time period. Terry Laundry
Update Feb 18 2005
The updated short Range T chart below shows signs of topping which may or may not be significant for the near term. Click on the image for the larger, more detailed chart. The simplest way to interpret the market’s (S&P 500) outcome is to recognize that in ongoing sustainable up trends history shows “normal” corrections find support around the 55 day MA currently at about S&P 1184 (cash) as noted in the chart. It would be negative if the current correction can’t hold this level. It would be longer term bullish however if the S&P can base at this level and set the stage for a new advance. It will take a few more days to see how the trend wants to develop.
Of course the process of finding the next low turning point is the same as last low because my basic principles involved don’t change. The current topping in the blue volume oscillator and decline will eventually assumed to be a cash build up period that represents the monetary fuel for the next rally phase. In the days ahead we will have to find an oscillator oversold condition that might mark a low but expect that any new rally will be preceded by a rising bottoms pattern in the volume oscillator. In time I will be able to follow up on the pattern. If you calculate the indicator you should see it develop in real time.
Also if you are calculating the Volume oscillator the new data in this chart can confirm your ongoing computations. Early in March I will post a table of the calculations for the last 30 days along with the calculation of the 55 Day MA and the 39 week MA. This should provide all the basic indicator one needs to monitor the developing patterns as interpreted by T Theory.
A second and very important point that should be kept in mind. It is certainly true anything can happen trend-wise, and many types of oscillator patterns could occur, however history shows that S&P lows will tend to cluster only around the 55 Day MA or the 39 week MA so these are the two outcomes that are most likely once the daily data settles down. The 39 Week MA is basically the lower channel envelope extreme in this daily chart so the price objective alternatives are always apparent 1184 or 1146 on the S&P. More next week. Terry Laundry
Update Feb 11 2005
Calculation of the T Theory Daily Volume Oscillator
To calculate the progression of the blue Volume Oscillator as depicted in my daily chart below you need to recalculate the 18 day and 36 day Volume oscillator values that are noted in the chart for each successive day beyond this chart’s history. The formulas used are very simple because they are based on exponential moving averages and use recursive equations that are easy to implement in any software package. Click on the image for a better view.
I am providing these examples of daily calculations along with periodic updates in the daily chart which you can use to check your own calculations or restart the process. But I won’t have time to answer specific questions.
If you have a problem, it should be easy to find someone that understand the simple math involved. In later Calculation Topics, I will introduce the other index calculations that I keep in a simple spreadsheet. Using a simple spreadsheet is best; it is easy to set up, fast to use, and makes the arithmetic error free. I will provide a spreadsheet later.
Super trader Marty Schwartz who used this oscillator for some decades claims that one is better prepared to use the day to day pattern for finding bottoms or tops if you plot the oscillator values by hand on real graph paper. Watching the pattern for tops and bottoms evolve from one day to the next gives one better perspective on how this volume oscillator tends to anticipate changes in price trends. The computer generated chart is helpful, but he claims the day to day plot helps to get the better feel for its leading characteristics.
Each day after the market close you will need to obtain the net on balance volume data for the NY Exchange. This can be obtained anywhere but is conveniently available on the web in the market summary section at cbs.marketwatch.com. The data is in the Market diaries section.
Be sure you find the number of millions of share traded on the advancing stocks (called the Up volume) and the number of millions of share traded on the Declining stocks ( called the Down Volume) . These numbers will typically run in the range of 300 to 1200. The Up Volume minus the Down Volume = the net volume for the day (in millions of shares) is the only day’s number needed to complete the calculation. The number should be positive on an up day, negative on a down day and tends to vary in the range of plus 900 to minus 900.
But to keep the final number in a better range for plotting by hand on graph paper, I take this raw net volume and divide it by 10. So the Reduced Net Volume Change figure we actually use typically fluctuates between 90 and -90.
The Calculation of the next day’s 18 Day Volume Oscillator is simply a modification of the prior day’s value of the 18 Day Volume Oscillator using the new day’s Reduced Net Volume number:
Today’s 18 Day Volume Oscillator = 90% of Yesterdays 18 Day Volume Oscillator +10 times Today’s Reduced Net Volume.
Today’s 36 Day Volume Oscillator = 95% of Yesterday’s 36 Day Volume Oscillator +5 times Today’s Reduced Net Volume.
To Illustrate the calculation I show how the the Feb 10th Volume Oscillator value is calculated from the Feb 9th data in the chart.
On February 9 2005 the chart notes the 18 Day VO= 433 and the 36 Day VO= 343. The blue Volume Oscillator we really want is always equal to 18 Day VO -36 Day VO, that is (433-343) = +90.
Note this puts the volume oscillator close to the zero line which is a normal momentum support location for an ongoing up trend. If one is bullish a up turn would be expected near the zero level and new highs in price should follow.
On Feb 10th the Up Volume was 841 million shares , the Down Volume= 608 million shares; So the Net Volume for Feb 10= 841-608= plus 233 and the Reduced Net Volume is therefore plus 23 (23.3 more precisely but not necessary).
The Feb 10 18 Day Volume Oscillator always = 90% of Yesterdays 18 Day Volume Oscillator (433) +10 time Todays Net Volume (+23).
Or = 433*.9(392)+23*10(230)= 622
The Feb 10 36 Day Volume Oscillator always = 95% of Yesterdays 36 Day Volume Oscillator (343) +5 times Todays Net Volume (+23).
Or 343*.95 (326) + 23*5 (115) =441
For Feb 10 Today’s blue Volume Oscillator still equals Today’s 18 Day VO – Todays 36 Day VO, that is 622-441= 181 .
This is an improving number an may be confirming an expected turn up in line with a bullish forecast. However a real bullish confirmation would require net up volume to become much stronger on Friday and Monday in order to justify an up turn around the zero momentum line.
For Friday the formula just repeats with Yesterday’s numbers being based on Feb 10 calculations,etc Next week I will post a summary of the daily calculations to clarify any further issues. Terry Laundry
Update Feb 4 2005
Today’s strong 120 point Dow advance with good breadth and on balance volume has confirmed an expected up turn and and an eventual retest of the old late December highs (or higher) as its near term upside objective.
In response to requests I will post the procedures for calculating the volume oscillator so that one can set up a daily procedure for its calculation in a simple spreadsheet. I will post this late next week with a short term chart that contains the starting points for the calculation. I will not have time to answer any questions on the math procedure but if the steps are followed I don’t think there should be problems. Future charts will have enough info to verify the calculation or make any corrections if need.
The volume oscillator pattern in my Jan 27 update was potentially a very bullish one and I would expect to see a rally that gains strength as we move into the old price highs with preferably higher highs in line with the long range A-D Ts that see a continuing up trend to an early 2007 final peak. Terry Laundry
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