DJIA

Short Term Trend Checklist (under 20 trading days)

Checklist calculations

Stock Check List - DJIA short term trend checklist
Stock: DJIA	BUY/SELL Rating: -5	Date: April 22nd, 2005
Indicator	Confirming	Negating
Trendlines (read report)		Downtrend
Candlestick patterns (Pattern Page)		Hangman
5 & 20 day SMA's (read report)		5 & 20 day SMA down
MACD (read report) MACD-H (read report)		MACD downtrend MACD-H downtrend
Slow Stochastics (read report)		Even thought the stochastics have crossed and have just entered a overbought condition, the overall trend of the stochastics are down, in this case, this signal is false and the trend will go down. (short term)
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Points:	0 positive	5 negative

Comments:

In this weeks checklist we have substituted the original RSI for a slow stochastic. Stochastics work well in short term trading, but since the DJIA is an average of large blue chip stocks, I have chosen to use the Slow Stochastic rather than the fast stochastic. In this checklist we are interested in longer term trading (not daily, maybe weekly, preferrably in the months).

In the case of the stochastics, we want it to create newer highs, which it has not done. Also for more conservative traders, using a 50 cross as a confirmation will remove most false signals.

We also should see a bit more to go in this downtrend, there are no confirming signals.

Trader Tips:

Stochastics:

The Stochastic Oscillator generates signals in three main ways:

Extreme values when the 20% and 80% trigger lines are crossed. Buy when the stochastic falls below 20% and then rises above that level. Sell when the stochastic rises above 80% and then falls below that level. The pattern of the stochastic is also important; when it stays below 40-50% for a period and then swings above, the market is shifting from overbought and offering a buy signal. And vice versa when it stays above 50-60% for a period of time.
Crossovers between the %D and %K lines. Buy when the %K line rises above the %D line and sell when the %K line falls below the %D line. Beware of short-term crossovers. The preferred crossover is when the %K line intersects after the peak of the %D line (right-hand crossover). Crossovers often provide choppy signals that need to be filtered through the use of other indicators.
Divergences between the stochastic and the underlying price. For example, if prices are making a series of new highs and the stochastic is trending lower, you may have a warning signal of weakness in the market.

To remove false signals generated by the stochastic indicators, use the crosses 20/80 line for a warning signal and then a 50 line cross to confirm.

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The charts shown above are from Stock Tools, see feature