by Alex Martin

In this month's newsletter we will be screening with overbought and oversold indicators, including the Williams %R, the CCI and the Fast Stochastic (9,3). (See ChartFilter Newsletter #8 for more information on these indicators.) Then we will analyze a particular stock chart that was found by our screen.

Overview:

An overbought condition is considered to occur when the number of issues (purchases) that closed above the opening price is higher than those that closed below the opening price. An oversold condition is considered to occur when the number of issues that closed below the opening price is higher than those that closed above the opening price.

Note: When screening for these types of conditions it is important to also look at the overall trend of the security. See trendlines.

Technicals:

Step 1: Williams %R : Hits 10% or 90%, BUY, within last 10 days.

The buy signals for the Williams %R occurs when the indicator line crosses up through the 90% line. More cautious investors may also wait for the %R to hit a lower level, such as 95% or even 100%, before it crosses back up through the 90% line.

Step 2: CCI : crosses +/- 100, BUY, within last 10 days

Step 3: Fast Stochastics - : 9,3 %D crosses 20/80%, BUY, within last 10 days.

The stochastics buy signal occurs when the %D line crosses the 20% and is used as an oversold warning signal. This signal is more reliable if you wait until the %K and %D lines turn upward below 5% before buying.This signal can be confirmed again when the %D crosses the 50% line after the initial signal.

Fundamentals:

Step 3: To limit our results we will also insert a price range of $1-$100 by using a close greater that or equal to $1, a close less than or equal to $100, and an average 30-day volume greater than or equal to 10,000. (Note that volume is in thousands, therefore 10 = 10,000. See 30 day average volume)

Step 4: click search and view results

These are the results of the search.

In these results we are looking for stocks that have generated all three signals around an approximate recent date.

When we look at one of the securities returned by this screen we can see where these indicators compliment each other as shown in the chart below.

An important step in determining whether or not to invest in this company is to find out why the price dropped so suddenly. These large price shifts make technical indicators unreliable as they "settle back down." Previous signals generated by this system showed promise.

All three indicators shown above are overbought/oversold indicators that can be used to confirm each other. But, by mixing different types of indicators you may be able to get more information about the stocks current price trend. It is important to experiment to see which indicators may compliment your own trading system.