Ever wondered which trading signals are the ones that work? Well wonder no longer. According to Business Week there are 5 signals to follow. These apparently, among the myriad of signals that exist are the ones that the professionals on Wall Street use, which means of course that if they all use them then they should work simply because they are all using them! A self-fulfilling prophecy! But not to be sniffed at. The signals are :-
- The VIX or Volatility Index (or 'fear gauge') VIX.X
- The TRIN or Short-Tern Trading Index which shows whether there is more volume in advancing stocks or in declining stocks, which indicates whether stocks are overbought or oversold. Last week the TRIN reached 8 indicative of panic and a possible bottom.
- Odd-lot shorts - an interesting one this. The amount of bets against the market (shorts) in lots of less than 100 shares, this shows small investors are shorting the market. Traders often use this as a contrary indicator. Odd-lot short interest surged last week , possibly signaling the rally that followed on Mar. 6. (Also known as screw the little guy).
- Moving averages - in particular the 50 day exponential moving average for the S&P 500
- The Relative Strength Index (RSI) . To show a market bottom the 14 day RSI must fall below 30 (oversold). If the S&P subsequently rebounds then suffers a pullback, the RSI must stay above its initial low.
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