REAL WORLD
A Dickens Of A Dilemma
A Tale Of Two Indicators
by Andrew Tomlinson
What do you do when two apparently similar indicators give opposite
signals?
On July 6, 2004, I was feeling pretty pleased
with myself. The stock market was falling and my short positions were making
money for the first time in a couple of months (hey, stay on one side of
the market for long enough and you're sure to be right sooner or later).
One of my short positions, Micromuse (MUSE), gapped down 20% at the open
on a revised outlook. When I checked the market later in the day (I trade
from home, so the first day after a long weekend is an orgy of grocery
shopping and ferrying the kids here and there - you get the picture - so
being glued to the broker's screen is not really an option), I saw that
the stock had traded down another 18% before starting to swing up again.
No reason for swift action, I decided (my experience as a non-daytrader
is that I lose money if I make snap judgment calls during the trading day).
I chose to wait for my day's-end review before planning my next steps.
WHAT I FOUND
That evening, I opened up MetaStock and started to go through my positions.
When I got to MUSE, I saw that the price had ended up pretty much where
it started, showing a big initial gap down and then a spike reversal (one
of those falling-window-doji-hammery-things for candlestick aficionados)
on heavy volume.
Figure 1: CMF AND MFI. These indicators moved in opposite
directions on a one-day spike down in MUSE.
...Continued in the October issue of Technical Analysis of STOCKS
& COMMODITIES
Excerpted from an article originally published in the October 2004
issue of Technical Analysis of STOCKS & COMMODITIES magazine. All rights
reserved. © Copyright 2004, Technical Analysis, Inc.
Return to October 2004 Contents
