How to Use the Indicating Ranges
Our Indicating Ranges provide an invaluable tool to assess the strength (or lack of strength) in a given market on all levels of price activity and from several different perspectives. The numbers provided in our Indicating Ranges are not derived from moving averages, oscillators or stochastics, nor are they generated through technical charting. This study is based purely upon models that merge both time and price and therefore incorporate certain timing qualities that cannot be obtained through any linear form of analysis.
Our Indicating Ranges are actually divided into 6 categories:
- Long-Term Trend
- Cyclical Strength
We normally refer to only the first three ranges in our daily reports for daily through monthly price levels. The purpose of these ranges is quite simple. Each provides an indication as to a specific aspect of market activity based upon the CLOSING of the current trading session.The numbers will also supply system support and resistance.
We refer to this tool as “Indicating Ranges” because they provide an “indication” as to a specific aspect of the market based on the markets close. The three possible indications are Negative, Neutral and Positive.
Momentum refers to the market’s ability to move quickly in either direction on a short-term basis. When a market remains in a neutral position, abrupt price movement in either direction is unlikely. Markets that turn positive are capable of a sustained rally. Likewise, markets that remain in a negative position are capable of a further decline.
The Trend indicator refers to short-term or the immediate trend at hand. Again, a neutral indication on the trend range suggests a sideways trend is likely whereas a positive indication suggests a continued rally. A negative indication warns of a further decline. The period that the trend range is concerned with is one week on a daily basis, one month on a weekly and one quarter on a monthly basis.
The Long-Term Trend range provides an indication of the broader trend defined more or less as a 10 to 15 interval of time. Therefore, this indicator covers roughly a 2 week period on a daily level, a 3 month period on a weekly level, and about 1 year on a monthly level.
Our Cyclical Strength Indicating Range is rarely discussed. This particular indicator tends to be more important during abrupt moves in the short-term time frame that exceed 15% from the last important low or high. This level of our model incorporates the fixed timing elements of our Empirical Timing Models. Normally, the very definition of a bull or bear market is defined by this level on a model when on a monthly price level. Therefore, a bearish monthly indication suggests a bear market, positive—a bull market, and neutral indications warn of a market in transition or consolidation.
The Panic Indicating Range is an indicator which rarely comes into play. However, it has proven to be an invaluable indicator during periods of extreme violent price action, such as the 1987 stock market crash. This indicator often identifies the support or resistance areas during major panics.
Our Basket Indicating Range is a composite indicator combining time, price, and international value. This indicator is calculated in a basket of currencies and then reconverted back into nominal currency terms as normally used in that particular market. This level of our model helps to provide the global perspective rather than the pure domestic viewpoint.
While the monitoring of 6 different indicators may at first appear to be a bit confusing, the actual use of these indicators is actually quite simple. As we mentioned earlier, the actual indication comes on a closing basis. For example, let us say that gold
- closes at $367 and the ranges for the day are as follows:
- Momentum: 365.00 – 360.80
- Trend: 372.00 – 362.00
A closing at $367 would suggest that momentum is still positive, warning that if an uptrend is in place, it should still continue. But, in regard to trend, the close was neutral because it was within the range. This warns that resistance is still overhead at $372 and only a close above that price would suggest that the market is breaking out to the upside.
The use of the indicating ranges in trading are twofold. Besides offering an indication on a closing basis, they often provide the highs and lows of a day or week, particularly during sideways markets when dealing with the shorter ranges. Cyclical Strength, Panic and Basket Ranges tend to pick the highs and lows of major moves. All our ranges are also excellent tools for traders who are looking for points against which to buy or sell during the trading session.
For position traders, the closing indications can provide an excellent overall guide for exiting a market. For example, bull markets can often be very deceiving, throwing several quick down drafts in your path only to be followed by another rally to new highs. The indicating ranges will follow the market higher, as do the reversals. Nevertheless, the first time a bull market closes neutral on the Momentum Range is a sign that at least a temporary top has been made because the market has lost the ability to move up quickly. Also, the first time a bull market closes neutral on the Trend Range is a sign that the Trend has shifted from up to sideways. Therefore, if you are looking for a signal as to when to take profits, this indicator will be among the best for a simple, straightforward decision based upon a given close.
Of course the same is true in the opposite direction. The first NEUTRAL closing within a persistent declining market will normally signal that at least a temporary low has been established. Accordingly, it would be prudent to take profits and step out of all short positions.
As always, our models are divided into various planes of activity—daily through yearly. Each model is run totally independent of the other on each plane of activity. Using this method, we can easily differentiate between reactions and a serious change in trend.
For a bull market to turn into a bear market, the price activity must move below all four of the first indicating ranges—Momentum through Cyclical Strength. When concerned with the short-term view, (1 to 2 years), this would then be relevant to the daily through monthly levels of activity. When dealing in views beyond 2 years and out to 10 to 15 years, then we also include the quarterly and yearly models.
As an example, we were able to forecast that the bull market in stocks had not come to an end following the crash of 1987 because the market did not penetrate the Long-Term Trend or Cyclical Strength Ranges on the monthly levels. That was a mandatory classification requirement for a bear market. By those indicators remaining positive, the market clearly demonstrated that we were dealing with only a pause in the short-term trend and not a major change in the long-term trend.
If we look at our ranges relative to gold, we can see that gold moved into a short-term bear market by moving into the negative position on the daily through monthly levels. However, when we look at the yearly ranges, gold has not once been negative during the post 1980 era. This indicates that gold is still in a long-term bull market which coincides with our timing models that point to new major highs in the 90’s. New highs in the future would be impossible if the market had negative Yearly Ranges.
In the very short-term trading perspective, the ranges can be invaluable during periods of false moves. For example, the daily indications can be negative while the weekly indications are still positive. This indicates only a short-term reaction. If the market begins to shift into a neutral position on the weekly ranges, then we are looking at a change in actual trend which could last for several months or more.