StockCharts Blogs - MailBag

How can I compare two securities?

There are two ways to compare securities using SharpCharts. The first method is simply to analyze the price plots together, one overlaid on the other. Another security can be overlaid by choosing “price” in the indicator box, entering “$SPX” for parameters and choosing “behind price” for position. Any symbol can be entered here. I chose red for color contrast.


The chart below shows General Electric (GE) in black and the S&P 500 in red. Both moved higher from July to September, but started to diverge in October and November. Notice that the S&P 500 recorded higher highs in October-November, but GE formed lower highs. GE is not keeping pace with the S&P 500 and shows relative weakness. 

Click this chart for details.

The second method involves a ratio chart. Choose “price” in the indicator box and then enter the two symbols you wish to compare for parameters. I want to know the performance of GE relative to the S&P 500 so I enter the symbols as a ratio (GE:$SPX). You can use any two symbols. I elected to show this indicator below, but you can also choose to view is behind the main price plot (GE in this case).


The chart below shows the relative strength comparative or ratio plot for GE and the S&P 500. Notice that the ratio peaked in late September and declined the last two months. GE started lagging the S&P 500 in late September and continues to lag as long as this ratio moves lower. A break above the November highs is needed for GE to start showing relative strength again.

Click this chart for details

What’s the difference between the Aroon indicators?

The Aroon Oscillator is simply Aroon(down) subtracted from Aroon(up). It is positive when Aroon(up) is greater than Aroon(down) and negative when Aroon(down) is greater than Aroon(up). The oscillator can be used as a stand alone indicator or in conjunction with Aroon(up) and Aroon(down). As noted in the chart school article, Aroon means “dawn’s early light” in Sanskrit. Tushar Chande, a serial indicator developer, created this indicator to determine the direction and strength of the trend. You can find formula details in the chart school article.

A strong uptrend is present when Aroon(up) is above 70. Upside momentum dissipates when Aroon(up) declines below 50. Similarly, the bulls have the edge when the Aroon Oscillator is positive. This bullish edge increase as the oscillator becomes more positive. Oscillator readings above +50 signal a strong uptrend.

A strong downtrend is present when Aroon(down) is above 70. Downside momentum dissipates when Aroon(down) declines below 50. Similarly, the bears have the edge when the Aroon Oscillator is negative. This bearish edge increases as the oscillator becomes more negative. Oscillator readings below -50 signal a strong downtrend.


 Click this chart for details.

In the example above, Citrix (CTXS) shows Aroon examples of a strong uptrend, a consolidation and the start of a downtrend. First, the Aroon oscillator was between -50 and +50 during the consolidation. Citrix could not establish strong direction as Aroon(up) and Aroon(down) remained close together. Second, a strong uptrend started when Aroon(up) surged above 70 and the Aroon Oscillator moved above +50 (yellow area). Third, Aroon(down) recently surged above 50 and the Aroon Oscillator moved below -50. This move suggest that a downtrend is starting for Citrix. You can also find "Stocks in a new uptrend (Aroon)" signals on the stock scans page.

How are Sector Carpet values computed?

The Sector Carpet values reflect the average change for the stocks in that sector. First, let’s take a look at the default sector carpet. Nine sectors are represented. Each sector has a title box with its name and the average change for each stock. You can click on the title box to focus on a sector exclusively. Before leaving this image, notice that +2.1% is the average gain in the utilities sector.

After clicking on the utilities title box, I am now focusing exclusively on the stocks in the utilities sector. Hover over the green boxes, right click the mouse and choose “show values” to see individual price changes. The numbers in each box reflect the percentage change in each stock. Remember, +2.1% was the average gain for the utilities sector. This average gain is found by adding these numbers together and dividing by the total number of stocks. 

Think of the average gain/loss as a breadth indicator of sorts. If the Utilities SPDR (XLU) is up strong, then you can dive into the Sector Carpet to see where the gains are coming from. XLU is a market-capitalization weighted ETF that can be dominated by large-caps. The current utilities carpet shows gains across the board, which means all stocks are participating and this is bullish. If the Utilities SPDR (XLU) was up and the utilities carpet showed an average loss, it would show underlying weakness within the sector. In other words, the gain in XLU would be attributable to a few large-caps and not representative of the entire sector. Click here to learn more about Market Carpets.

How do you construct a cumulative indicator?

A cumulative indicator can be constructed for any price series that oscillates above/below zero. Cumulative adds when positive and subtracts when negative. Therefore, this setting will not work for a price series that is always positive. Net Advances, Net Advancing Volume and Net New Highs fluctuate above/below zero. Net Advances equals advancing stocks less declining stocks (advance-decline issues). Net Advancing Volume equals volume of advancing stocks less volume of declining stocks (advance-decline volume). Net New Highs equals new 52-week highs less new 52-week lows (new highs-new lows). These “breadth” statistics are available for the NYSE, Nasdaq, Amex, TSE and TSX. In the symbol catalog, search the terms “issues”, “volume” or “highs” to find corresponding symbols. Below are the search results for “highs”.

To create a cumulative chart, first open a SharpChart with the appropriate symbol. In this example, I am using Net New Highs for the Toronto Stock Exchange ($TOHL). Your default chart will come up and we can then adjust the settings. First, select “plain OHLC bars” under “ChartStyles” and click update. A plain chart will then appear. Second, select “cumulative” under chart “type” and “price” in the indicator window. Enter $THOL for the parameters and set the “style” as “area.

Click update and you will see a chart for cumulative Net New Highs in the main window and an area chart of daily Net New Highs in the indicator window. This is a good base for other breadth charts. Now try changing the symbol to $TOAD to see the Advance-Decline line in the main window and Net Advances in the indicator window.

Click this chart to see the settings.

What does the Stochastic Oscillator measure?

Knowing what an indicator measures is the first step to really understanding it. Sure, the formulas can get technical, but it is important to understand an indicator before using its for trading. Today we are going to dive into the Stochastic Oscillator, a popular momentum oscillator developed by George Lane.

The Stochastic Oscillator is composed of two parts: %K and %D. %K measures the current price level versus the high-low range over a given look-back period, typically 14 days. %D is a 3-day SMA of %K and acts as a signal line. This discussion will focus on %K, which is referred to as the Stochastic Oscillator in this article.

The Stochastic Oscillator fluctuates between zero and one hundred. High values (80-100) indicate that prices are at the upper end of the high-low range for the look-back period. Low values (0-20) indicate that prices are at the bottom end of the high-low range. Middle values (40-60) indicate that prices are near the midpoint of the high-low range.

The example above shows QQQQ with the Fast Stochastic Oscillator (%K). QQQQ is trading near the top of its 14-day range in October (yellow area). As expected, the Fast Stochastic Oscillator is above 80 currently and has been largely above 80 since early last week. This tells us that QQQQ moved to the top of its 14-day range early last week and remained at the top of its 14-day range for over a week. In other words, it remained strong. Don’t forget that the 14-day range changes as new days are added and older days fall off.

You can read more on the Stochastic Oscillator in the Chart School (click here). This article also explains the difference between the Fast, Slow and Full Stochastic Oscillator.

What is a bearish signal reversed alert?

A bearish signal reversed is a Point & Figure signal that reverses a downtrend. A downtrend is present because of lower lows and lower highs. Each column of O’s declines below the prior column to forge a lower low. Each column of X’s falls short of the prior column to forge a lower high. The combination of lower lows and lower highs creates the downtrend or the bearish signal. This signal is reversed when a column of X’s finally exceeds the prior column to forge a higher high. The chart for Southwest Airlines (LUV) shows lower lows from October (red A) until March (red 3). A move above 10 reversed this signal in September. Despite this bearish signal reversed alert, LUV remains below the downward trendline.

As you may have guessed, the opposite signal is a bullish signal reversed. An uptrend is present with a series of higher highs and higher lows. This uptrend is reversed when a column of X’s finally exceeds the prior column to forge a higher high. Aecom Tech (ACM) worked its way higher with an uptrend from April until July. A sharp decline in August (red 8) pushed prices below the prior column of O’s to reverse the uptrend. Despite this bullish signal reversed signal, ACM remains with an upward trendline (blue).

Annotations were made outside of Stockcharts.com by opening the chart image in a graphics-editing program. Bullish signal reversed, bearish signal reversed and other P&F alerts can be found on the P&F pattern scan page. Also check out the P&F charting books in our bookstore.   

Why is today's Force Index value missing from my chart?

Q: Force Index is not calculated during the day, but only shows value from previous day.
This is an important correction to make for us who uses this indicator.  - Hans

A: Because the Force Index uses volume data in its calculation, we do not compute a value for the current period until that period is complete and all the volume for that period has been totaled.  This prevents our charts from giving misleading Force Index signals.

For example, consider a hypothetical stock that normally trade 1 million shares per day.  Recall that the force index is defined as "the difference between today's close and yesterday's close times today's volume."

Let's assume that for each day of the past week, the stock has gone up $1 in a pretty regular manner.  In that case, the daily Force index would be around 1 million each day.

Let's also assume that it is now 1 hour into a new trading day and the stock has continued its trend climbing 10 cents so far on 100,000 shares of volume.  That means that - 1 hour into the day - the Force index for the day would be at 100,000.

The problem is that if we charted that, you would see a _huge_ drop in the Force index chart from yesterday to today (i.e. from 1 million to 100,000).  That 10x drop would be very misleading because the stock hasn't really changed its behavior during that time.

In summary, because plotting the Force Index for an incomplete period next to Force Index values based on complete bars leads to extremely misleading charts, we don't to it.  That is also true for other price-volume indicators like the Chaikin Money Flow and OBV.

Can I apply a moving average to an indicator?

Yes, Sharpcharts users can apply moving averages, and other indicators, to indicators. Start with a Sharpchart and select an indicator from the drop down box under the chart.

Once you have selected an indicator, more choices will appear on the right. Here you can select your overlay, which is an indicator of the indicator.

Once the overlay has been selected, you can then set the parameters accordingly. In the example below, I chose OBV with a 50-day moving average. On the QQQQ chart below, you can see that OBV has been above its 50-day SMA since the second week of July.

Click this chart to see the settings.

Indicator overlays can also be applied to oscillators like RSI, Rate-of-Change and Chaikin Money Flow. The example below shows Chaikin Money Flow with a 10-day SMA. This moving average can act as a signal line for the indicator, kind of like the 9-day EMA works as a signal line for MACD. Chaikin Money Flow is moving higher when it is above the 10-day SMA and moving lower when below the 10-day SMA. Chaikin Money Flow for QQQQ is currently moving lower and approaching its zero line.

Click this chart to see the settings.

What is a divergence?

There are two types of divergences: negative divergences and positive divergences. A negative divergence occurs when the underlying security moves to a new high, but the indicator fails to record a new high and forms a lower high. For momentum indicators, a negative divergence shows slowing upside momentum that can sometimes foreshadow a bearish reversal. Not all negative divergences result in good signals, especially during a strong uptrend. On the Staples (SPLS) chart, the stock formed a higher high in September, but MACD did not exceed its prior high. A negative divergence formed and MACD moved below its signal line (red) recently.  

Click this chart for details.

A positive divergence occurs when a security moves to a new low, but the indicator holds above its prior low to form a higher low. For momentum indicators, a positive divergence shows less downside momentum that can sometimes foreshadow a bullish reversal. Not all positive divergences result in good signals, especially in a strong downtrend. On the Sprint (S) chart, the stock formed a lower low in early September, but RSI held above its prior low to form a positive divergence. Also notice that RSI was oversold in mid August and held above 30 in September. The subsequent move above 50 in RSI and the breakout in Sprint confirmed the signal. Sprint as since moved back below its breakout and warrants a reassessment.

Click this chart for details.

Divergences, both positive and negative, can also form in non-momentum indicators like On Balance Volume, the Accumulation Distribution Line, the AD Line and Chaikin Money Flow. On the Expedia (EXPD) chart, the stock moved to a new high in September, but On Balance Volume (OBV) did not confirm with a higher high. A lower high is forming in OBV and the indicator moved below its 10-day SMA. Sharpcharts users can add moving averages to indicators. This smooths the data and helps define direction. To add a moving average, click the green arrow next to “advanced options”, which is just to the right of the indicator parameters.

Click this chart for details.

Click here to learn more about oscillators in our Chart School.

How can I quickly scroll through a list of stock charts?

SharpCharts features allow members to scroll through 30 charts per page with their favorite indicators. Before you can scroll through a list of charts, you must first create a list or use an existing list. Once a list has been created, SharpCharts users can edit this list and easily add stocks from pre-defined lists. As the image below shows, SharpCharts users can add stocks from the Nasdaq 100, S&P 500 and S&P Sectors.

Once a list has been created and stocks added, go to Sharpcharts to view the individual charts. First, choose your list from the “in chartlist” drop down menu. My list is “stocks-ndx” for the Nasdaq 100 stocks. This will show the first chart in the list, which is Apple (AAPL). Users can scroll forwards and backwards one chart at a time with the blue arrows. Alternatively, users can click the “view all” link to see 10 per page. Now we are picking up speed.

Once the “10 Per Page” view is set, there are even more, and faster options available. In particular, the “Candleglance” option is perhaps the fastest way to scroll through a chart list. Choose this option to see 28 charts on one page.

The charts are just big enough to see candlestick patterns, short-term moving average crosses and high-volume moves. One the snapshot below, we can see a bearish engulfing for Apple, a gap for Adobe, a shooting star for ADP and resistance for Autodesk.

But that’s not all. The duration drop down menu allows users to view 6-month, 1-year or Point & Figure charts. In addition, the indicator drop down lists 21 indicators available for these charts. This makes it easy to spot oversold oscillators, Aroon crosses or Bollinger Band squeezes. Again, you can see 30 charts on one page. It takes just four page views to see all Nasdaq 100 charts.