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**** Click Left Mouse Button to Start and Stop Text **** THE STOCK ANALYST from Aggressive Communications VERSION 2.00 September 2, 1990 Copyright (c) 1989,1990 Aggressive Communications LICENSE AGREEMENT READ THE FOLLOWING TERMS AND CONDITIONS BEFORE USING THE ACCOMPANYING SOFTWARE AND/OR ASSOCIATED DOCUMENTATION. USE OF EITHER THE SOFTWARE OR DOCUMENTATION CONSTITUTES ACCEPTANCE ON YOUR PART OF THESE TERMS AND CONDITIONS. THE SOFTWARE AND DOCUMENTATION IS PROVIDED 'AS IS', AND NO WARRANTY OF ANY KIND, EXPRESSED OR IMPLIED, IS PROVIDED. THIS INCLUDES, BUT IS NOT LIMITED TO, THE FITNESS FOR USE FOR ANY PURPOSE. THE FULL EXTENT OF ANY AND ALL LIABILITIES ARE ASSUMED BY YOU. UNDER NO CONDITIONS WILL THE AUTHOR BE LIABLE FOR ANY DAMAGES, INCIDENTAL OR CONSEQUENTIAL, INCLUDING ANY CURRENT OR FUTURE FINANCIAL LOSS OF INCOME, PROFITS, OR SAVINGS, ARISING FROM THE USE, MISUSE, OR INABILITY TO USE THIS SOFTWARE. THE AUTHOR DOES NOT WARRANT THAT THE SOFTWARE FUNCTIONS WILL MEET YOUR REQUIREMENTS OR THAT THE OPERATION OF THE SOFTWARE WILL BE UNINTERRUPTED OR ERROR FREE. FURTHERMORE, THE SOFTWARE OR DOCUMENTATION MAY CONTAIN ERRORS THAT CAN BE CORRECTED WITHOUT ANY NOTIFICATION. YOU ASSUME LIABILITY FOR THE RESULTS OBTAINED FROM ANY USE OF THE SOFTWARE OR DOCUMENTATION. YOU MAY MAKE ONE COPY OF THE SOFTWARE FOR BACKUP PURPOSES. YOU MAY NOT MODIFY THE SOFTWARE OR A BACKUP COPY OF THE SOFTWARE IN ANY WAY. YOU MAY NOT COPY THE DOCUMENTATION BY ANY MEANS. YOU MAY TRANSFER THE ORIGINAL SOFTWARE AND THE DOCUMENTATION TO ANOTHER PARTY PROVIDED THE TRANSFEREE ACCEPTS THESE TERMS AND CONDITIONS, AND YOU DESTROY THE BACKUP COPY OF THE SOFTWARE YOU MAY HAVE CREATED. YOU ACKNOWLEDGE READING AND UNDERSTANDING THIS LICENSE AND AGREE TO BE BOUND BY ITS TERMS AND CONDITIONS. YOU ALSO AGREE THAT THIS LICENSE IS THE SOLE AGREEMENT WHICH EXISTS BETWEEN US REGARDLESS OF HOW THE SOFTWARE MAY HAVE BEEN OTHERWISE REPRESENTED. UNDER COPYRIGHT LAWS, NEITHER THE DOCUMENTATION OR SOFTWARE MAY BE COPIED, PHOTOCOPIED, TRANSLATED, OR REPRODUCED IN ANY MANNER TO AN ELECTRONIC MEDIUM OR MACHINE-READABLE FORM, IN WHOLE OR IN PART, EXCEPT AS DESCRIBED ABOVE. COPYRIGHT (C) 1989,1990 AGGRESSIVE COMMUNICATIONS ALL RIGHTS RESERVED. CREATED AND PRINTED IN THE UNITED STATES OF AMERICA. AMIGA IS A REGISTERED TRADEMARK OF COMMODORE BUSINESS MACHINES. - i - TABLE OF CONTENTS Chapter 1 Introduction Section Introduction . . . . . . . . . . . . . . . . . . 1.0 General . . . . . . . . . . . . . . . . . . . . 1.1 How to Boot The Stock Analyst . . . . . . . . . 1.2 The Stock Analyst Data Files . . . . . . . . . . 1.3 Chapter 2 Stock Updater General . . . . . . . . . . . . . . . . . . . . 2.1 Project . . . . . . . . . . . . . . . . . . . . 2.2 Master File . . . . . . . . . . . . . . . . . . 2.3 Equity File . . . . . . . . . . . . . . . . . . 2.4 Chapter 3 The Stock Analyst General . . . . . . . . . . . . . . . . . . . . 3.1 Project . . . . . . . . . . . . . . . . . . . . 3.2 Price Indicators . . . . . . . . . . . . . . . . 3.3 Volume Indicators . . . . . . . . . . . . . . . 3.4 Breadth Indicators . . . . . . . . . . . . . . . 3.5 Defaults . . . . . . . . . . . . . . . . . . . 3.6 Graph Tools . . . . . . . . . . . . . . . . . . 3.7 Chapter 4 Technical Analysis General . . . . . . . . . . . . . . . . . . . . 4.1 Advance/Decline Line . . . . . . . . . . . . . . 4.2 CBOE Put/Call Volume Ratio . . . . . . . . . . . 4.3 Chaikin Oscillator . . . . . . . . . . . . . . . 4.4 Commodity Channel Index . . . . . . . . . . . . 4.5 Directional Movement Indicator . . . . . . . . . 4.6 Lane's Stochastics . . . . . . . . . . . . . . . 4.7 Linear Regression . . . . . . . . . . . . . . . 4.8 Moving Averages . . . . . . . . . . . . . . . . 4.9 Moving Average Convergence/Divergence . . . . . 4.10 On Balance Volume . . . . . . . . . . . . . . . 4.11 Positive and Negative Volume Index . . . . . . . 4.12 Price Rate-of-Change . . . . . . . . . . . . . . 4.13 Price and Volume Trend . . . . . . . . . . . . . 4.14 Relative Strength . . . . . . . . . . . . . . . 4.15 Trend Lines / Trading Band . . . . . . . . . . . 4.16 Volume Accumulation and Distribution . . . . . . 4.17 Wilder's Relative Strength Index . . . . . . . . 4.18 Williams' Percentage R . . . . . . . . . . . . . 4.19 Appendix A: References Appendix B: Suggested Reading - ii - 1.0 INTRODUCTION Thank you for purchasing The Stock Analyst. The author hopes that your investment in this software package is profitable. The Stock Analyst provides for a means of storing and maintaining a variety of data associated with the stock market as well as processing the data such that buy and sell decisions can be made with some degree of confidence that a profit will be made. This document is organized to provide you with a general introduction to The Stock Analyst and how to get started in Chapter 1. Chapter 2 contains instructions on running the Stock Updater program used for updating and maintaining stock data. Chapter 3 contains instructions on running The Stock Analyst and displaying the various indicator graphs as well as working with the graph tools. An explanation of each technical indicator and how to use an indicator under various market conditions is discussed in Chapter 4. The Stock Analyst should not be the sole source of information upon which your investment decisions are made. In the same way that the technical indicators provided by The Stock Analyst must be used to confirm one another, your Investment Advisor, Stock Broker, or business newspapers, and your own experienced opinion should be considered as other sources for a confirming signal. Profits and losses realized in the past due to the use of any technical indicator does not necessarily predict future indicator performance. 1.1 GENERAL The Stock Analyst is a bootable Workbench disk. It should be booted after using Kickstart version 1.2 or higher. It is recommended that you boot with The Stock Analyst due to a unique setting within the Preference system-configuration file. In order to perform graphic dumps to a graphics printer, the graphic print selection within Preferences is set to negative. 1.1.1 SYSTEM REQUIREMENTS The Stock Analyst runs on any Amiga 500, 1000, or 2000 with at least 512K of RAM and a single disk drive. A printer capable of printing graphics is required to perform screen dumps to the printer. A color monitor is suggested since the Stock Analyst displays graphs in color. The Stock Analyst comes with one printer driver: generic. If your printer requires a specific driver, it will be necessary for you to copy that driver from your Workbench disk to The Stock Analyst disk. The printer driver resides in the printers subdirectory within the devs directory. If you do copy a driver to The Stock Analyst disk, that driver will need to be selected within Preferences. See the Amiga users manual concerning specifying printer drivers within Preferences. 1.1.2 DISK CONTENTS The Stock Analyst is a bootable disk. Therefore, the standard Workbench directories, libraries, and files reside on the disk. The files unique to The Stock Analyst as well as files required by The Stock Analyst include: exec.bmap Required for library function calls. layers.bmap Required for library function calls. graphics.bmap Required for library function calls. Stock Analyst Executable program. Stock Updater Executable program. stocks Master File of Stocks. putcall.dat Data file of CBOE Put and Call Volume. adline.dat Data file of NYSE Advances/Declines. sp500.dat Data file of Standard & Poor 500 Index. sp100.dat Data file of Standard & Poor 100 Index. djidaily.dat Data file of Dow Jones Industrial Average (DJIA) daily price information. The .bmap files are required for various library calls for setting up a borderless window, some of the plotting routines, and some of the text output routines. The .bmap files are absolutely required to run the Stock Updater and The Stock Analyst programs and must reside in the root directory of the disk from which the executable program is initiated (this should be The Stock Analyst disk). 1.1.3 BACKING UP THE STOCK ANALYST The Stock Analyst is not copy protected. You can, and are advised, to make one backup copy and place the original disk in a safe place. The backup copy should be used as the working copy with the original available in an emergency situation. Refer to your documentation included with the Amiga for details on duplicating a disk. Since the programs included with The Stock Analyst are useless without up-to-date stock information, it is a good idea to routinely backup the disk which contains your stock data. A backup of stock data should be made at least weekly. 1.2 HOW TO BOOT THE STOCK ANALYST DISK The Stock Analyst disk may be booted by following the steps outlined below: 1. Turn on the Amiga. 2. Insert the Kickstart disk version 1.2 or higher, into drive df0:, the internal disk drive. 3. When prompted for the Workbench disk, insert The Stock Analyst disk into drive df0:, the internal disk drive. 4. The Workbench screen will appear with the disk icon for The Stock Analyst. 5. Refer to section 1.2.1 for loading and executing the Stock Updater program or 1.2.2 for loading and executing The Stock Analyst program. If Kickstart and another disk have already been booted, follow the steps outlined below to boot The Stock Analyst: 1. Remove any disks in the disk drive(s). 2. Simultaneously depress the Control key and the left and right Amiga keys to perform a warm-boot. 3. When prompted for the Workbench disk, insert The Stock Analyst disk into drive df0:, the internal disk drive. 4. The Workbench screen will appear with the disk icon for The Stock Analyst. 5. Refer to section 1.2.1 for loading and executing the Stock Updater program or 1.2.2 for loading and executing The Stock Analyst program. 1.2.1 STOCK UPDATER Having booted The Stock Analyst disk as described in 1.2, the Stock Updater program may be executed as follows: 1. Open The Stock Analyst disk icon by moving the mouse such that the pointer is over the disk icon and double click the left mouse button. 2. With the disk window open displaying the various program icons, move the mouse such that the pointer is over the Stock Updater program icon and double click the left mouse button. 3. The Stock Updater program will load and execute. The screen should go blank and then display a title screen. Click the left mouse button to clear the screen. 4. Refer to Chapter 2 on using the Stock Updater program to update and maintain stock data files. 1.2.2 THE STOCK ANALYST Having booted The Stock Analyst disk as described in 1.2, The Stock Analyst program may be executed as follows: 1. Open The Stock Analyst disk icon by moving the mouse such that the pointer is over the disk icon and double click the left mouse button. 2. With the disk window open displaying the various program icons, move the mouse such that the pointer is over the Stock Analyst program icon and double click the left mouse button. 3. The Stock Analyst program will load and execute. The screen will go blank and then display a title screen. Click the left mouse button to clear the screen. 4. Refer to Chapter 3 on using The Stock Analyst program to generate the technical indicator graphs. 1.3 THE STOCK ANALYST DATA FILES The data files used by The Stock Analyst include a Master File, Equity Files, a file containing NYSE issues which advanced, declined, or were unchanged, and a file containing CBOE Put and Call volumes. These files may be created and/or maintained via the Stock Updater program or via a text editor. If a text editor is used to update a file, the format of the file must be maintained as described below in each file description. In addition, the files are date dependant and must always be in descending order, that is the most recent date is the first line and the oldest date is the last line in the text file. These files generally reside in the root directory of whatever disk they are located on. Currently the Stock Analyst will allow up to 70 securities to be followed. The security data files can contain up to 750 data sets which represents 3 years of daily data, or over 14 years of weekly data. 1.3.1 MASTER FILE The Master File name is stocks and contains the formal name of the equity and the equity data file name. For example: Dow 30 Industrials <-- Formal equity #1 name djidaily.dat <-- Equity #1 data file NYSE Advance/Decline <-- Formal equity #2 name adline.dat <-- Equity #2 data file MCI Communications <-- Formal equity #3 name mci.dat <-- Equity #3 data file : : : : The Master File, stocks, must reside in the root directory of the disk from which the Stock Updater or The Stock Analyst is executed from (this should be The Stock Analyst disk). There can be a maximum of 70 equities followed. 1.3.2 EQUITY FILE The Equity File contains the actual price data of the securities being followed. The Equity File data file name is defined in the Master File as described in section 1.3.1 above, for example mci.dat. The actual equity price data files can reside anywhere since the Stock Updater and The Stock Analyst programs allow the user to change to a data disk located in another drive (df0: or df1:) if necessary. The format of the equity data files is as follows: DATE,CLOSE,HIGH,LOW,VOLUME(in 1,000's) For example: 891024,43.38,43.88,43.25,234.5 891023,43.63,44.00,43.38,333.7 891022,43.50,43.88,43.13,275.2 : : : : Note that the date format is YYMMDD, that is year, month, date. The fractional part of a price must be entered as a decimal. A price cannot be entered as 43 3/8. Finally, the volume is entered in thousands. Note that the data is in descending order based upon the date. If a commodity such as gold is being followed, and only closing prices are available, then the closing price should be entered for the close, high, and low entries, and the volume should be zero. 1.3.3 ADVANCE/DECLINE LINE In order for The Stock Analyst to display the NYSE Advanced/Decline Line, the data file adline.dat must be kept current on a day-for-day basis with the Dow Jones Industrial Average equity data file djidaily.dat. The format of this data file is as follows: DATE,ADVANCES,DECLINES,UNCHANGED,ZERO For example: 891024,564,978,432,0 891023,694,512,501,0 891022,1012,465,522,0 : : : : Note the date format is YYMMDD, that is year, month, date. As discussed in Chapter 4 for interpretation of the Advanced/Decline Line, the daily Dow Jones Industrial Average is compared with the A/D line; therefore, it is mandatory for the dates in the djidaily.dat and the adline.dat data files to correspond one-to-one. It is recommended that these data files reside in a common directory on the same disk. Note that the data is in descending order based upon the date. 1.3.4 CBOE PUT/CALL RATIO In order for The Stock Analyst to display the CBOE Put/Call Volume Ratio, the data file putcall.dat must be kept current on a day-for-day basis with the Dow Jones Industrial Average equity data file djidaily.dat. The format of this data file is as follows: DATE,CBOE CALL VOLUME,CBOE PUT VOLUME,ZERO,ZERO For example: 891024,320123,120865,0,0 891023,333154,221987,0,0 891022,243512,89543,0,0 : : : : Note the date format is YYMMDD, that is year, month, date. As discussed in Chapter 4 for interpretation of the CBOE Put/Call Ratio, the daily Dow Jones Industrial Average is compared with the Put/Call line; therefore, it is mandatory for the dates in the djidaily.dat and the putcall.dat data files to correspond one-to-one. It is recommended that these data files reside in a common directory on the same disk. Note that the data is in descending order based upon the date. 1.3.5 STANDARD & POOR 100 & 500 INDEX Included with The Stock Analyst data files are the S&P 100 and S&P 500 price files. These are included to provide the ability to consider the performance of the broad market. The S&P 100 and S&P 500 can be used in Relative Strength calculations. It is sometimes advantageous to consider the performance of an individual stock against a broad market index such as the DJIA or one of the S&P indices. The format of these data files is as follows: DATE,CLOSE,HIGH,LOW,ZERO For example: 891024,340.23,344.76,339.44,0 891023,341.33,346.31,340.01,0 891022,338.23,342.84,336.57,0 : : : : Note the date format is YYMMDD, that is year, month, date. Refer to section 4.15 for interpretation of the Relative Strength Indicator. As noted in section 4.15, the price data of an equity is compared with a broad market index; therefore, it is mandatory for the dates in all equity .dat price data files and the broad market index .dat price data file correspond one-to-one. It is recommended that these data files reside wherever the equity price data files reside. Note that the data is in descending order based upon the date. 1.3.6 DEFAULT INDICATOR TIME PERIODS When a new security is added to the Master File stocks, a file containing default indicator time periods unique to the new security is also created. When created, this file has a suffix of .dfl. While this file is always created, it is an optional file in that The Stock Analyst program looks for the file and loads it if it is available. The .dfl files are created with the following initial values: 12 <-- Price Rate-of-Change Period 5 <-- Stochastic %K Period 3 <-- Stochastic %D Period 10 <-- Williams' %R Period 14 <-- Wilder's RSI Period 10 <-- Commodity Channel Index Period 50 <-- Moving Average #1 Period 200 <-- Moving Average #2 Period 25 <-- +/- Volume Index Moving Average Period 10 <-- % Variation for 1st Envelope Trading Band -5 <-- % Variation for 2nd Envelope Trading Band 10 <-- A/D Line Momentum Period 10 <-- Indicator Exponential Moving Average Period 50 <-- Linear Regression Period 14 <-- Directional Movement Indicator Period Once a security has been analyzed using the various indicators and tools provided by The Stock Analyst, the user will find indicator time periods which provide optimum buy/sell signals which differ from the above defaults. The .dfl file can then edited to reflect the time periods which work best for each security. Refer to section 2.4.6 on editing the .dfl file. 2.0 STOCK UPDATER This chapter details the use of the Stock Updater program to manage the stock data used by The Stock Analyst. The data required by The Stock Analyst can be found in any newspaper which has a decent business section. The data required includes: - Dow 30 Industrials high, low, close, and volume - Your selected securities high, low, close, and volume - NYSE issues advancing, declining, and unchanged - CBOE call and put volume - S&P 500 Index high, low, and close - S&P 100 Index high, low, and close It is recommended that the data files be updated on a daily basis if daily data is followed, or on a weekly basis if weekly data is followed. 2.1 GENERAL Having executed the Stock Updater program as described in section 1.2.1, all subsequent activities are menu driven. An activity is selected from the menu by pressing the right mouse button which reveals the main menu selections. With the right mouse button depressed, move the mouse such that the pointer is over, and highlights, the desired main menu selection which will reveal the submenu items. Move the mouse down such that the pointer moves into the submenu items, and highlights the desired submenu activity. Release the right mouse button and the desired submenu activity will be selected. The main menu selections include Project, Master File, and Equity File. Each menu item is described below. 2.2 PROJECT The Project menu contains general activities related to updating any specific type of data file. Under the Project Menu are the submenu items Print Data, Chg Directory, and Quit. 2.2.1 PRINT DATA Selecting Print Data opens a window and displays the available data files. Select More if there are more data files than can be displayed in one window. Select a data file by moving the mouse over an equity name and click the left mouse button. The selected item will become highlighted. Then move the mouse such that the pointer is over Select and click the left mouse button to load the data, or select Cancel to cancel the operation. Upon loading a data file, the stock data is printed via the PRT: device. Upon intervals of 50 data sets, the output may be terminated or continued. 2.2.2 CHANGE DIRECTORY Selecting Change Directory allows disk access to a data disk if that is where the stock data is stored. Upon selecting Change Directory, a window opens with gadgets showing drives DF0: and DF1:. Click the left mouse button on the gadget of whichever drive contains the stock data files. In the event that an attempted disk access is made to a data file which is not resident on the current disk, an error message will be displayed that the file was not found. 2.2.3 QUIT Selecting Quit terminates the Stock Updater program. The user is returned to the Workbench screen. 2.3 MASTER FILE The submenu items under Master File deal with manipulating the file stocks. For a description of this file, see section 1.3.1. The file stocks resides in the root directory of The Stock Analyst disk. Through the Master File submenu items, it is possible to add (create), edit and delete stocks which are maintained. 2.3.1 ADD ENTRY The Add Entry function essentially creates a new stock data file in the current directory. Before selecting Add Entry to create a new stock data file, the user should be certain that the correct disk volume (df0: or df1:) has been selected as described in 2.2.2. Upon selecting Add Entry, the user is prompted for the formal equity name and the name of the data file. For example: ENTER EQUITY NAME (Press RETURN to Quit)? Dupont <Return> ENTER DATA FILE NAME (Program will append '.dat')? DD <Return> Note that the Stock Updater program will append .dat to the data file name. Entries are made via the keyboard and pressing Return completes the entries. Pressing Return at a prompt with no input will abort the Add Entry function. The formal equity name and the data file name will be added to the Master File stocks, and an empty data file will be created. In addition to creating an empty price .dat data file for the security created, a file containing default indicator time periods unique to the security is created with the suffix .dfl. The format of the .dat file is given in section 1.3.6. Section 2.4.6 covers editing the .dfl default indicator time periods. It is possible to create data files within subdirectories. This is accomplished by inputting a full path name for the data file name. For example, suppose price data files are kept on a data disk in a subdirectory called EQUO. The data disk is located on DF1:, the external disk drive. To create a new stock price file for a stock called Dupont with a symbol of DD, you would first change directory to DF1: as described in section 2.2.2. Then select Add Entry and enter: ENTER EQUITY NAME (Press RETURN to Quit)? Dupont <Return> ENTER DATA FILE NAME (Program will append '.dat')? EQUO/DD <Return> Note that the data file name contains the full subdirectory path. In the event that a file already exists with the specified name, the Updater will not create an empty file. 2.3.2 EDIT ENTRY Selecting Edit Entry opens a window and displays the available data files. Select More if there are more data files than can be displayed in one window. Select a data file by moving the mouse over an equity name and click the left mouse button. The selected item will become highlighted. Then move the mouse such that the pointer is over Select and click the left mouse button to select the file, or select Cancel to cancel the operation. A window will display the current formal equity name and data file name. The user is prompted to enter (edit) the formal equity name and file name. For example: Present Equity Name: Dup0nt EDIT EQUITY NAME (Press RETURN to Quit)? Dupont <Return> Present Data File Name: DD.dat EDIT DATA FILE NAME (Program will append '.dat')? DD <Return> Entries are completed by pressing the Return key. This information is then updated in the Master File stocks, and the equity data file and defaults file are renamed as required. 2.3.3 DELETE ENTRY Selecting Delete Entry opens a window and displays the available data files. Select More if there are more data files than can be displayed in one window. Select a data file to be deleted by moving the mouse over an equity name and click the left mouse button. The selected item will become highlighted. Then move the mouse such that the pointer is over Select and click the left mouse button to select the file, or select Cancel to cancel the operation. The user is prompted to indicate whether or not the selected equity data should be removed from the Master File stocks. For example: DELETE Equity: Dupont Answer: Y or N <Y> Dupont will be DELETED! O.K. TO CONTINUE? Y/N <Y> 'Y' or 'N' inputs are made by simply pressing the appropriate key. It is not necessary to press Return. This activity should be used with care. Note that only the security entry in the Master File stocks is deleted. The actual price data .dat file is not deleted from the data disk. 2.4 EQUITY FILE The submenu items under Equity File deal with maintaining the .dat files which contain the price and/or volume data used by The Stock Analyst program. For a description of these files, see section 1.3. Through the Equity File submenu items, it is possible to add new, edit existing and delete price and/or volume data associated with the securities which are maintained. 2.4.1 ADD ENTRY Selecting Add Entry opens a window and displays the available data files. Select More if there are more data files than can be displayed in one window. Select a data file by moving the mouse over an equity name and click the left mouse button. The selected item will become highlighted. Then move the mouse such that the pointer is over Select and click the left mouse button to load the data, or select Cancel to cancel the operation. A window will open displaying the equity formal name and the date of the most recent data entry. For example: Dupont Last Date: 900203 Enter DATE as YYMMDD (Press RETURN to Quit/Save)? 900204 <Return> ENTER CLOSING PRICE ? 23.13 <Return> ENTER HIGH PRICE ? 23.38 <Return> ENTER LOW PRICE ? 23.00 <Return> ENTER VOLUME (1000's)? 757.2 <Return> Prompts for the date, close, high, low, and volume data are made. Entries are made via the keyboard and completed by pressing the Return key. Continuous data entries can be made at this point and may be terminated by pressing Return without any entry at the date prompt. The data will be sorted in descending order by date and rewritten to the equity data file. Valid inputs of the date must be in the form YYMMDD. For example, February 4, 1990 would be input 900204. Valid inputs for price data is any number greater than zero. Valid inputs for the volume is any non-negative number. If the Advance/Decline Line or CBOE Put/Call Ratio data files, adline.dat or putcall.dat respectively, are being updated, the prompts change corresponding to the data being input. However, the methodology of entering the data is identical as described above. 2.4.2 EDIT ENTRY Selecting Edit Entry opens a window and displays the available data files. Select More if there are more data files than can be displayed in one window. Select a data file by moving the mouse over an equity name and click the left mouse button. The selected item will become highlighted. Then move the mouse such that the pointer is over Select and click the left mouse button to load the data, or select Cancel to cancel the operation. A window will open displaying the equity formal name and the date of the most recent data entry. For example: Dupont Last Date: 900206 ENTER DATE AS YYMMDD (Press RETURN to Quit)? 900204 <Return> -- If the date is found, the screen clears and displays: -- Present DATE is: 900204 EDIT DATE (YYMMDD)? 900204 <Return> Present CLOSING Price: $23.13 EDIT CLOSING PRICE: $? 23.25 <Return> Present HIGH Price: $23.38 EDIT HIGH PRICE: $? 23.38 <Return> Present LOW Price: $23.00 EDIT LOW PRICE: $? 22.88 <Return> Present VOLUME (1000's): 757.2 EDIT VOLUME (1000's) ? 757.2 <Return> Current data for the date, close, high, low, and volume and prompts for new date, close, high, low, and volume data are made. Entries are made via the keyboard and completed by pressing the Return key. Continuous data editing can be made at this point and may be terminated by pressing Return without any entry at the date prompt. The data will be sorted by date and rewritten to the equity data file. If the Advance/Decline Line or CBOE Put/Call Ratio data files, adline.dat or putcall.dat respectively, are being updated, the prompts change relative to the data being edited. However, the methodology of editing the data is identical as described above. 2.4.3 DELETE ENTRY Selecting Delete Entry opens a window and displays the available data files. Select More if there are more data files than can be displayed in one window. Select a data file by moving the mouse over an equity name and click the left mouse button. The selected item will become highlighted. Then move the mouse such that the pointer is over Select and click the left mouse button to load the data, or select Cancel to cancel the operation. A window will open displaying the equity formal name and the date of the most recent data entry. A prompt for the date of the data set to be deleted is made. The format of the date input is YYMMDD, for example October 24, 1989 would be entered as 891024. The current data for the date selected is displayed and the user is asked to delete the data. For example: Dupont Last Date: 900204 Enter DATE as YYMMDD (Press RETURN to Quit)? 900204 <Return> DELETE this data? DATE : 900204 CLOSE : 23.13 HIGH : 23.38 LOW : 22.88 VOLUME : 757.2 ARE YOU SURE? Y/N <Y> Entries are made via the keyboard and completed by pressing the Return key. Continuous data deleting can be made at this point and may be terminated by pressing Return without any entry at the date prompt. The data will be sorted by date and rewritten to the equity data file. If the Advance/Decline Line or CBOE Put/Call Ratio data files, adline.dat or putcall.dat respectively, are being updated, the prompts change relative to the data being deleted. However,the methodology of deleting the data is identical as described above. 2.4.4 STOCK SPLIT Selecting Stock Split opens a window and displays the available data files. Select More if there are more data files than can be displayed in one window. Select a data file by moving the mouse over an equity name and click the left mouse button. The selected item will become highlighted. Then move the mouse such that the pointer is over Select and click the left mouse button to load the data, or select Cancel to cancel the operation. A window will open displaying the formal equity name and the date of the most recent data entry. A date is prompted for the effectivity date of the stock split. A ratio is likewise prompted for to indicate the type of split, for example 3 for 2. For example, a two-for-one stock split for Dupont effective as of October 24, 1989 is entered as follows: Dupont Enter Stock Split Ratio as X-for-Y by Entering: X/Y:? 2/1 <Return> Enter Effectivity Date (YYMMDD) (Press RETURN to Quit)? 891024 <Return> Entries are made via the keyboard and completed by pressing the Return key. The stock price data will be adjusted for all dates prior to, and including, the effectivity date entered. The data will be sorted by date and rewritten to the equity data file. 2.4.5 STOCK DIVIDEND Selecting Stock Dividend opens a window and displays the available data files. Select More if there are more data files than can be displayed in one window. Select a data file by moving the mouse over an equity name and click the left mouse button. The selected item will become highlighted. Then move the mouse such that the pointer is over Select and click the left mouse button to load the data, or select Cancel to cancel the operation. A window will open displaying the formal equity name and the date of the most recent data entry. A date is prompted for the effectivity date of the stock dividend. For example, a ten dollar dividend payable October 24, 1989 for Holly Corporation is entered as follows: Holly Corp Enter Dividend Amount? 10 <Return> Enter Effectivity Date (YYMMDD) (Press RETURN to Quit)? 891024 <Return> Entries are made via the keyboard and completed by pressing the Return key. The stock price data will be adjusted for all dates prior to, and including, the effectivity date entered. The data will be sorted by date and rewritten to the equity data file. 2.4.6 EDIT DEFAULTS When working with the various indicators, it will become obvious that varying the time period of an indicator will provide different buy/sell signals. As a result, it is possible to optimize signals given by the indicator through repeated trials using different time periods. Once an optimum period has been identified, that period can be used again later. You will want to change the default time period to insure that the optimize period is consistently used in future analyses. Using the Edit Defaults function allows you to edit the data stored in the .dfl file. Selecting Edit Defaults opens a window and displays the available data files. Select More if there are more data files than can be displayed in one window. Select a data file by moving the mouse over an equity name and click the left mouse button. The selected item will become highlighted. Then move the mouse such that the pointer is over Select and click the left mouse button to load the data, or select Cancel to cancel the operation. A window will open displaying each indicator and its current default value. A prompt will be given to enter a new default value. Enter the new default value and press Return, or simply press Return with no entry and the default value will remain unchanged. Upon completing entries (or pressing Return with no input) for all time dependant indicators, the appropriate .dfl defaults data file is updated. 3.0 THE STOCK ANALYST This chapter deals with the operation of The Stock Analyst program. How to load and construct the indicator graphs is presented as well as a discussion on how to use the graph tools to enhance the analysis of the indicators. Suggestions on how to analyze an indicator are covered in chapter 4. 3.1 GENERAL Having executed The Stock Analyst program as described in section 1.2.2, all subsequent activities are menu driven. An activity is selected from the menu by pressing the right mouse button which reveals the main menu selections. With the right mouse button depressed, move the mouse such that the pointer is over, and highlights, the desired main menu selection which will reveal the submenu items. Move the mouse down such that the pointer moves into the submenu items, and highlights the desired submenu activity. Release the right mouse button and the desired submenu activity will be selected. The main menu includes Project, Price Indicator, Volume Indicator, Breadth Indicator, Defaults, and Graph Tools. Each menu item is described below. 3.2 PROJECT The Project menu contains submenu functions which are not specifically related to a type of indicator graph. Various program functions are included under the Project menu. 3.2.1 LOAD DATA Selecting Load Data opens a window and displays the available data files. Select More if there are more data files than can be displayed in one window. Select a data file by moving the mouse pointer over an equity name and click the left mouse button. The selected item will become highlighted. Then move the mouse such that the pointer is over Load and click the left mouse button to load the data, or select Cancel to cancel the operation. At this point all of the data in the data file is loaded into memory. The user can select a specific time interval to be displayed by entering beginning and ending dates to be displayed. The dates of the first and last entries in the data file are shown in parenthesis as the default dates. Pressing Return with no input selects the default dates. Therefore, to display all the data for a security, the user simply presses Return at the prompts with no input. Otherwise, start and ending dates are entered in the familiar YYMMDD format. For example, after selecting Dupont to study, you wish to analyze the stock's performance during the last six months of 1989. The following entries would be made: There were 368 data sets read. Begin loading data at what date? ( 880906 ) ? 890701 <Return> Quit loading data at what date? ( 900827 ) ? 891231 <Return> The high/low/close price graph would be displayed for the period between July 1, 1898 and December 31, 1989. All subsequent price and volume indicators selected would likewise be displayed for the specified time interval. Note that indicator calculations are made using data from the entire file, yet only the specified time interval is displayed. As another example, a user wishes to analyze only data since January 1, 1990 to the present, the following entries would be made: There were 457 data sets read. Begin loading data at what date? ( 880906 ) ? 900101 <Return> Quit loading data at what date? ( 900827 ) ? <Return> Note that no entry is made for the 'Quit loading...' prompt and the Return key was simply pressed thus selecting the default date of August 27, 1990. Selecting the Load Data function loads the price data for the specified security, and loads the data from the default indicator period file if it exists. Note that it is necessary to load data for an equity before any of the price or volume indicator graphs, or Print Data function under the Project menu are activated. Zooming-in to a price graph is achieved by specifying a small number of data sets be displayed. Zooming-out of a price graph is achieved by specifying a large number of data sets be displayed. 3.2.2 PRINT DATA Selecting Print Data will print, via the PRT: device, about 50 data sets of the most recent stock price information. This submenu item is available only after data has been loaded for an equity as described in section 3.2.1. If it is desired to print more data than provided for here, the Stock Updater program should be use to print additional data (See 2.2.2). 3.2.3 PRINT SCREEN Selecting Print Screen will perform a graphics dump of the screen to a graphics printer. This submenu item is available only after an indicator graph has been drawn, or simply when there is something on the screen. Other program activity is inhibited while the graphics dump to the printer is in progress. 3.2.4 CLEAR SCREEN Selecting Clear Screen simply clears the screen. The current stock data loaded, if any, is still in memory such that indicator graphs may still be drawn without having to be reloaded. 3.2.5 CHANGE DIRECTORY Selecting Change Directory allows disk access to a data disk if that is where the stock data is stored. Upon selecting Change Directory, a window opens with gadgets showing drives DF0: and DF1:. Click on whichever drive contains the stock data files. In the event that an attempted disk access is made to a data file which is not resident on the current disk, an error message will be displayed that the file was not found. Changing directory to a disk drive which has no disk present in the drive will cause the program to abort. 3.2.6 QUIT Selecting Quit terminates The Stock Analyst program. The user is returned to the Workbench screen. 3.3 PRICE INDICATORS The price indicator graphs become available once some stock data has been loaded. These indicators are price sensitive in that they are solely based upon the change in price over time. Refer to Chapter 4 for a detailed discussion of each indicator and its suggested use. Selecting a submenu item clears the screen and displays information showing the indicator data is being calculated. Once the calculations are complete, the indicator graph is displayed. After an indicator graph has been displayed, the Graph Tools are available for analysis purposes and the graph may be eventually dumped to a printer at any time. 3.3.1 COMMODITY CHANNEL INDEX (CCI) The Commodity Channel Index is an indicator which takes the difference of the current price and a moving average and compares that to its own inherent volatility. The Commodity Channel Index is useful as an overbought/oversold indicator and can also be useful in predicting trend reversals by looking for divergences between the CCI and the price of the underlying equity. 3.3.2 DIRECTIONAL MOVEMENT INDICATOR (DMI) The Directional Movement Indicator is a trend-following indicator developed by J. Welles Wilder. Its primary function is to indicate strong upward or downward trends. Wilder maintains that the market remains in a strong trend only 30% of the time. The DMI is intended to keep investors out of the market during a neutral or trading market, in the market during strong advances, and out of the market during declines. 3.3.3 (DMI) POSITIVE AND NEGATIVE DIRECTION INDICATOR Two of the components which comprise the Directional Movement Indicator are the Positive Directional Indicator and the Negative Directional Indicator. These indicators can be used together to generate buy and sell signals. Upward pressure on the market or an equity are reflected in the increase of the Positive Direction Indicator while downward pressures are reflected in the increase of the Negative Direction Indicator. 3.3.4 LANE'S STOCHASTICS (%K, %D) Dr. George Lane's Stochastics is a price oscillator similar to Williams' %R, in that it attempts to predict price trends based upon a closing price in relation to a range of closing prices over a specific period of time. Lane's Stochastics provides good buy and sell signals in a trading (neutral) market. It also provides confirmation of a present trend as well as signals pending trend reversals. 3.3.5 LINEAR REGRESSION The Linear Regression indicator is a form of moving average which utilizes statistical methods to follow a trend. The Linear Regression indicator is typically used to indicate the current trend direction. A rising linear regression line means prices are on the increase (bullish), while a declining linear regression line means prices are on the decrease (bearish). In this manner, the Linear Regression indicator can also be used to signal trend reversals as the indicator changes direction. 3.3.6 MOVING AVERAGE CONVERGENCE/DIVERGENCE (MACD) LINE The MACD Line is constructed by taking the difference between a 26-day and 12-day exponential moving average. A 9-day exponential moving average is also plotted which represents a 'trigger' line. This is an excellent indicator for signalling trend reversals. The buy and sell signals provided by the trigger line are in some cases late, yet generally reliable. 3.3.7 MOVING AVERAGES Upon selecting Moving Averages, the user can select either a simple (unweighted) or exponential moving average. This is done by moving the mouse and clicking on either the Unweighted or Exponential gadget. If a simple moving average is selected, the user can select either a normal or centered moving average. This is done by moving the mouse and clicking on either the Normal or Centered gadget. If the number of days in the moving average exceeds the number of stock data sets, no moving average will be calculated; and only the high, low, close, and volume information will be graphed. See section 3.6 and 3.6.5 on varying the number of days in the moving average period. This graph displays the typical high, low, and close price range as well as a relative volume histogram. The moving averages, if selected, are drawn over the high, low, close data for analysis purposes. The indicator can be a simple or exponential moving average. Simple moving averages can be normal or centered. This graph displays the price data on a logarithmic scale such that a price increase from $1.00 to $2.00 has the same meaning percentage-wise as a price increase from $20.00 to $40.00. 3.3.8 PRICE RATE-OF-CHANGE The price rate-of-change is an indicator of momentum which compares the current price to the amount by which the price has changed over a specific period of time. Therefore, as an equity's price increases, the ROC indicator will increase. Likewise, as the price decreases, the ROC will decrease. The ROC provides confirming overbought and oversold signals; and can sometimes indicate the continuation of a current price trend. 3.3.9 RELATIVE STRENGTH The Relative Strength indicator is a ratio of one stock's price data compared with either a broad market index (such as the DJIA or S&P 500) or another stock. The Stock Analyst allows a loaded security to be compared with any other stock or market index of compatible file type. The Relative Strength indicator is drawn along with the closing price data of the selected equity. Trendline analysis, indicator moving average, and other technical analysis techniques can be used to interpret the chart. This tool is very useful in finding an equity which is out-performing other stocks or the market as a whole. 3.3.10 WILDER'S RELATIVE STRENGTH INDEX (RSI) J. Welles Wilder's Relative Strength Index is a price oscillator which indicates the strength left in a price trend. This indicator is based upon the number of higher and lower price closings over a specific time period. This indicator provides overbought and oversold signals which should be confirmed by other indicators. 3.3.11 WILLIAMS' PERCENTAGE R (%R) Larry Williams' %R indicator is a price oscillator which provides overbought and oversold signals based upon comparing a current price to a range of prices over a specific time period. Williams' %R provides good buy and sell signals in a trading (neutral) market. It also provides confirmation of a present trend as well as signals pending trend reversals. 3.4 VOLUME INDICATORS The volume indicator graphs become available once some stock data has been loaded. These indicators are primarily based upon volume while others relate volume and price. Volume indicators show the flow of smart money into or out of an equity. Refer to chapter 4 for a more detailed discussion of each indicator and its use. Selecting a submenu item clears the screen and immediately displays the volume indicator graph. Once an indicator graph has been displayed, the Graph Tools are available for analysis purposes and the graph may be eventually dumped to a printer. 3.4.1 THE CHAIKIN OSCILLATOR The Chaikin Oscillator, like all volume related indicators, depicts the flow of smart money into or out of an equity. The Chaikin Oscillator is used similarly to the OBV indicator. The amount of accumulation or distribution on a given day is dependant upon the closing price's relation to its high or low for the day. 3.4.2 ON-BALANCE VOLUME (OBV) On-Balance Volume is determined through a positive or negative volume accumulation depending upon a price's up or down closing. In this manner, OBV relates price to volume; and ultimately shows if volume is flowing into or out of an equity. Normally, OBV is best used to confirm other indicators, but can be used to predict a market bottom by indicating an increased flow of money into an equity and an eventual up-trend. 3.4.3 POSITIVE AND NEGATIVE VOLUME INDEX The Positive and Negative Volume indexes relates increases and decreases in volume to an equity's change in price. The premise of these indices is that the negative volume indicates the flow of smart money in and out of a security while the positive volume index indicates the flow of uninformed money in and out of a security. The Stock Analyst displays both the Positive and Negative Volume Indexes as well as individual 25-day simple moving averages. See section 3.6.9 for varying the period of the moving average. 3.4.4 PRICE AND VOLUME TREND The Price and Volume Trend indicator relates price and volume and is applied similar to the On-Balance Volume indicator. The Price and Volume Trend is determined by a cumulative total of the volume which is adjusted based upon a percentage increase or decrease in price from the previous day. 3.4.5 VOLUME ACCUMULATION/DISTRIBUTION The Volume Accumulation/Distribution indicator relates price and volume and is applied similar to the On-Balance Volume indicator. The Volume Accumulation/Distribution Line is determined by a cumulative total of the volume which is adjusted based upon a comparison of where a price closed in relation to its daily price range midpoint. 3.5 MARKET BREADTH INDICATORS The Stock Analyst provides four broad market indicators, three of which are based upon the NYSE advance/decline/unchange issues, and one based upon the CBOE call and put volumes. The Advanced/Decline Line and the CBOE Put/Call Ratio graphs may be drawn any time. Since these indicators do not use user specific data files, but instead files included with The Stock Analyst, they may be displayed without going through the Load Data function under the Project menu. 3.5.1 ADVANCED/DECLINE (A/D) LINE The Advanced/Decline line is a broad market indicator since it considers all securities traded on the NYSE on a given day. It depicts broad market trends based upon a cumulative difference between advancing issues and declining issues each adjusted by the number of issues unchanged. The Stock Analyst displays the A/D Line and overlays the Dow 30 Industrials (DJIA) daily closing. 3.5.2 ADVANCE/DECLINE RATIO The Advance/Decline Ratio indicator is simply the number of advancing issues divided by the number declining issues. A moving average is also drawn to smooth any erratic fluctuations. The Advance/Decline Ratio is used both as an overbought/oversold indicator and as a momentum oscillator. 3.5.3 BREADTH ADVANCE/DECLINE INDICATOR The Breadth Advance/Decline Indicator is attributed to Martin Zweig. It is calculated by taking a 10-day simple moving average of the number of advancing issues divided by the sum of the number of advancing issues and the number of declining issues. When the moving average moves toward 0.6, a bullish signal is present. When the moving average moves toward 0.4, a bearish signal is present. 3.5.4 CBOE PUT/CALL RATIO The Put/Call Ratio is determined by the ratio of the put volume and the call volume on the Chicago Board of Options Exchange. It is a broad market indicator since it involves all securities traded on the CBOE. Generally a high Put/Call Ratio indicates an impending market rally while a low Put/Call Ratio indicates a possible market sell-off. The Stock Analyst displays the Put/Call ratio as well as overlays a 10-day simple moving average and the Dow 30 Industrials (DJIA) daily closing. 3.6 DEFAULTS Basically all of the price indicator graphs are based upon an oscillator which is time dependant. Built into The Stock Analyst are default time periods for each indicator as specified by the developer of the technical indicator. When a new security is created using the Stock Updater, a .dfl file is created which contains the default time periods. The default time periods are as follows: 12 <-- Price Rate-of-Change Period 5 <-- Stochastic %K Period 3 <-- Stochastic %D Period 10 <-- Williams' %R Period 14 <-- Wilder's RSI Period 10 <-- Commodity Channel Index Period 50 <-- Moving Average #1 Period 200 <-- Moving Average #2 Period 25 <-- +/- Volume Index Moving Average Period 10 <-- % Variation for 1st Envelope Trading Band -5 <-- % Variation for 2nd Envelope Trading Band 10 <-- A/D Line Momentum Period 10 <-- Indicator Exponential Moving Average Period 50 <-- Linear Regression Period 14 <-- Directional Movement Indicator Period These periods may, however, be changed to provide for better buy and sell signals. For example, Wilder's Relative Strength Index (RSI) has a recommended oscillator period of 14 days. However, when the RSI for the Dow 30 Industrials is graphed using a 14 day period, market tops and bottoms are not clearly discernable. If the RSI period is lengthened to 30 days and the RSI recalculated, market tops and bottoms are obvious. In some cases lengthening a period will avoid most whipsaws thus avoiding false buy or sell signals. A good time period can be determined by trial and error using past data for a specific equity to generate reliable signals. This period can be used later when analyzing the same equity. When any of the Default submenu items are selected, a window opens showing the default value of the period, the current value of the period, and prompts the user for a new period value. New values are entered via the keyboard and pressing Return completes the entry. Pressing Return with no input, or an input of zero, sets the period to the default. Once an optimize time period has been decided upon for a specific equity and indicator, that time period can become the default value by entering the value into the .dfl file via the Stock Updater program. See section 2.4.6 on editing .dfl files. The next time the equity is loaded in The Stock Analyst, the optimized time periods become the default values. 3.6.1 COMMODITY CHANNEL INDEX Upon execution, the default period for CCI calculations is 10-days. Other popular periods are 15- and 20-day intervals. Longer periods identify longer term trends while shorter periods catch short term trends. Note that short term CCI periods can cause the investor to get caught up in a whipsaw. This value should range between 5 and 30. 3.6.2 DIRECTIONAL MOVEMENT INDICATOR Upon execution, the default period for Directional Movement Indicator as well as the Positive and Negative Movement Indicator calculations is 14-days. Longer periods identify longer term trends while shorter periods catch short term trends. Note that short term DMI periods can cause the investor to get caught up in a whipsaw. 3.6.3 LANE'S STOCHASTICS (%K, %D) Upon execution, the default period for %K calculations is 5-days. The default period for %D is 3-days. Longer periods identify longer term trends while shorter periods catch short trends. Note that short term %K periods can cause the investor to get caught up in a whipsaw. The %K period can be any value greater than zero and less than the number of data sets being considered. The value for %D should be between 3 and 5-days. 3.6.4 LINEAR REGRESSION Upon execution, the default period for Linear Regression calculations is 50-days. Longer periods identify longer term trends while shorter periods catch short term trends. Note that short term Linear Regression periods can cause the investor to get caught up in a whipsaw. This value should range between 25 and 300 days. 3.6.5 MOVING AVERAGES There are two moving averages which can be displayed. Upon execution, the default periods are 50 and 200-days. These values can be any number greater than zero. If an invalid number is entered, the default value is used. If a moving average period is greater than the number of stock data sets, the moving average will not be calculated or displayed. In this manner, none, one or two moving averages can be displayed. 3.6.6 PRICE RATE-OF-CHANGE Upon execution, the default period for ROC calculations is 12-days. Longer periods identify longer term trends while shorter periods catch short trends. Note that short term ROC periods can cause the investor to get caught up in a whipsaw. This period can be any value greater than zero and less than the number of data sets being considered. 3.6.7 WILDER'S RELATIVE STRENGTH INDEX (RSI) Upon execution, the default period for RSI calculations is 14-days. Other popular periods are 9 and 25-day intervals. Longer periods identify longer term trends while shorter periods catch short trends. Note that short term RSI periods can cause the investor to get caught up in a whipsaw. This period can be any value greater than zero and less than the number of data sets being considered. 3.6.8 WILLIAMS' PERCENTAGE R (%R) Upon execution, the default period for %R calculations is 10-days. Other popular periods are 20 and 30-day intervals. Longer periods identify longer term trends while shorter periods catch short trends. Note that short term %R periods can cause the investor to get caught up in a whipsaw. This period can be any value greater than zero and less than the number of data sets being considered. 3.6.9 POSITIVE AND NEGATIVE VOLUME INDEX Upon execution, the default period for PVI and NVI moving average calculations is 25-days. This period can be any value greater than zero and less than the number of data sets being considered. Longer periods identify longer term trends while shorter periods catch short trends, while at the same time short periods are subject to whipsaws. 3.6.10 ADVANCE/DECLINE LINE MOMENTUM Upon execution, the default momentum period for the Advance/Decline line is 10-days. This period can be any value greater than zero but less than the number of data sets being considered. Increasing the momentum period will provide more smoothing than shorter periods. 3.6.11 TRADING BANDS PERCENTAGE Upon execution, the default percentages for the top and bottom trading bands are 10% and -5% of the value of the moving average of the shortest duration (moving average #1). These percentages work well with moving averages of around 10-days. As the moving average period is lengthened, the average will tend to smooth out and drop well below the high, low, close price data. Hence, the percentages would need to increase from 10% to perhaps 15% or 20% and from -5% to perhaps 0% or 5%, to properly envelop the price data. This percentage value should be input as a whole number. For example, enter 10 for 10% or -7 for -7%. 3.6.12 INDICATOR MOVING AVERAGE Upon execution, the default period for the Indicator Moving Average calculations is 10-days. Longer periods identify longer term trends and provide greater smoothing of the indicator while shorter periods catch short trends and provide less smoothing. This period can be any value greater than zero and less than the number of data sets being considered. 3.6.13 RESET DEFAULTS Selecting Reset Defaults changes all variable periods to their default values as defined above or as specified in the defaults .dfl data file. 3.7 GRAPH TOOLS Once an indicator has been displayed, a set of graph tools become available to enhance the analysis of the indicators. The following provides a description of the various tools, how to implement them, and suggestions on ways to use them. With an indicator graph displayed, a graph tool is first selected by pressing the right mouse button and moving the mouse such that the pointer is over the Graph Tools menu. With the right mouse button still depressed and the submenus displayed, move the mouse down to the desired submenu tool which will become highlighted. Releasing the mouse button will then select that tool placing the program in a particular mode as described below. 3.7.1 GRAPH DATA Selecting Graph Data will place the program in a mode in which the high, low, and closing price data and the volume and associated date changes in the heading as the mouse pointer moves within the graph. For example, if the Dow Jones Industrial Average is loaded and the Moving Average price indicator has been displayed, selecting Graph Data allows the user to move the mouse and 'point' to locations within the graph and read in the heading the high, low, and closing prices, the volume, and the date for that point. The Graph Data mode remains in effect until the left mouse button is clicked. The Graph Data tool is available for all indicator graphs. It is useful in conjunction with a graph upon which the daily close of an equity has been overlaid using the Overlay Price tool (see 3.7.2). 3.7.2 OVERLAY PRICE The Overlay Price tool overlays the daily closing price over an already displayed indicator graph. For example, the Dow Jones Industrials Average has been loaded and the RSI price indicator displayed. Selecting Overlay Price will overlay the daily closing price of the DJIA over the RSI indicator graph. Once the daily plot is complete, the program exits the Overlay Price mode. With a technical indicator graph displayed, it is many times desirable to see what movement in stock price caused the associated movement in the indicator. In addition, there are times when a divergence between the movement of a stock price and the movement of an indicator foretells of a trend reversal. The Overlay Price tool does not provide a price scale when it is plotted. Therefore, if it is required to know the values of the prices overlaid on an indicator graph, the user can use the Graph Data tool described in 3.7.1 to display the price information. The Overlay Price tool is available for all indicator graphs except for the Moving Average price indicator which already displays daily price data. 3.7.3 TREND LINES The Trend Lines tool is used to draw one or more trend lines. This tool is essential for determining price support and resistance levels. Trend line analysis is further explained in section 4.16. The Trend Line tool is available for use with all indicator graphs. Once selected, move the mouse such that the pointer is at the first point and depress the left mouse button. With the left mouse button still depressed, move the mouse (which extends the trend line) such that the pointer moves to the second point. Releasing the mouse button draws a trend line. Note that the program is still in the Trend Line mode. Subsequent trend lines parallel to the first may be drawn by simply moving the mouse such that the pointer is over a desired point and clicking the left mouse button. As many parallel trend lines may be drawn as desired. The program stays in the Trend Line mode until the Return key is pressed. 3.7.4 EXTEND CHART The Extend Chart tool extends the Moving Average price indicator graph both time-wise and price-wise. The Extend Chart tool is therefore only available when the Moving Average price indicator graph is displayed. Upon selecting this tool, a window opens prompting for an amount to extend the chart in dollars and days. Pressing Return completes the entries and the Moving Average price indicator graph is redisplayed in the extended format. Once the graph has been redrawn, other tools or program functions may be used. The tool is useful in conjunction with the Trend Line tool for extending trends into the future. 3.7.5 CYCLE LINES The Cycle Lines tool draws a series of vertical parallel lines across the face of an indicator graph. Since many stock prices or trends are cyclic in nature, the Cycle Lines tool is useful in determining the length of those cycles. Once the Cycle Line tool has been selected, the cycle lines are drawn. The number of days in the cycle may be increased by one day by pressing the cursor-up key, or by 5-days by pressing the 8 key on the keypad. The number of days in the cycle may be decreased by one day by pressing the cursor-down key, or by 5-days by pressing the 2 key on the keypad. The cycle can be shifted to the left by one day by pressing the cursor-left key, or by 5-days by pressing the 4 key on the keypad. The cycle can be shifted to the right by one day by pressing the cursor-right key, or by 5-days by pressing the 6 key on the keypad. Another use for the Cycle Line tool is in conjunction with the Extend Chart tool. When the chart is extended, the lines depicting the months do not extend into the future. The Cycle Line tool can be used to draw the month lines into the future. There are typically 21 trading days in a month which is the default setting for the Cycle Line tool upon selection. The Cycle Line mode is exited by pressing the Return key. 3.7.6 TRADING BANDS The Trading Bands tool is available only when the Moving Average price graph is displayed. The Trading Bands tool draws a trading channel envelope which represents a percentage increase or decrease of the first moving average (that is the moving average with the shortest duration). For example, if the first moving average period is set to 10-days and the second moving average is set to 501-days (thus inhibiting a display of a second moving average), and a 10-day exponential moving average is calculated and displayed, selecting Trading Band from the Graph Tools menu will draw a trading channel which envelops the price data. Since stock prices typically trade within certain price limits during a trend, a price will move higher and lower within a trading channel. For a price to move significantly out of this trading range (+/- 3%) would signal a breakout in a particular direction. See section 4.16 for a further discussion on Trend Lines and Trading Channels. The Trading Bands tool is useful as it provides a visual indication when a stock price breaks out of a trading pattern. 3.7.7 INDICATOR MOVING AVERAGE The Indicator Moving Average is available whenever a price or volume indicator graph is displayed, with the exception of the price indicators: MACD and Moving Averages, and the volume indicator: Positive and Negative Volume Index. This tool simply draws an exponential moving average of the displayed indicator. This tool is useful as a means of smoothing an otherwise erratic indicator. In addition, many times a moving average overlaid on an indicator graph is used as a trigger line to provide buy and sell signals. For example, a 10-day exponential moving average overlaid atop a 12-day Price Rate-of-Change can provide buy and sell signals when the indicators cross. Note, due to a scaling conflict, the Indicator Moving Average and the Overlay Price tool are incompatible. Therefore, if the user wishes to display both the price data over an indicator, as well as a moving average of the indicator, the Indicator Moving Average tool should be selected first, and overlaying the price data via the Overlay Price tool second. 3.7.8 LEAST SQUARES The Least Squares tool is available when there is a price graph displayed. A price graph is displayed upon initially loading an equity, or after selecting the Moving Average under the Price Indicator menu. The Least Squares tool simply draws a straight line based upon the least squares line fit of the data between two given points. Upon selecting the tool Least Squares, the left most data point of the data set being considered is specified by moving the mouse to the first point and pressing the left mouse button. A vertical line will be drawn at that point. The right most data point of the data set being considered is specified by moving the mouse to the second point and pressing the left mouse button. A vertical line will be drawn at that point and the least squares line will be drawn. The least squares line drawn depicts the general trend of the data within the specified interval. In addition, if the least squares line is drawn from a point in time to the present, the relative deviation above and below the least squares line provides insight into where a current price is (high or low) based upon historical data. 4.0 TECHNICAL ANALYSIS This chapter introduces the general basis of technical analysis. In addition, a discussion of each technical indicator produced by The Stock Analyst is presented as well as suggestions on using the indicator under various market conditions. The discussions presented here are intended to provide a general overview of the use of a technical indicator or a concept of technical analysis. For a more complete and in depth study of technical analysis, the user is urged to investigate the publications listed in Appendix B. 4.1 GENERAL Buy low, sell high. How many times have we heard these words and wished we could anticipate market tops and bottoms. While the idea of buying low and selling high is simple, putting this idea into action generally results in a financial loss for those who have no methodology behind their timing in and out of the stock market. A certain amount of market analysis is required to be profitable whether it be fundamental or technical in nature. A fundamental analyst attempts to predict the movement of a stock price based upon a company's prospect for growth and profitably. The fundamentalist considers the company's earnings and ability to perform within its industry group. Also considered are the overall national and global economic conditions and how they may effect the success of the company. Other issues may come into play such as political unrest, natural disasters or some other fundamental influence which may effect the financial status of a company. Generally, fundamentalists invest based upon issues which cause a stock price to move. A technical analyst does not care what specifically causes a stock to move in price. A basic premise of technical analysis is that fundamental influences on the price of a stock are already incorporated into the price of the stock. Therefore, the technical analyst is not concerned with fundamental issues, but rather the actual movement of stock prices which tend to move in fairly predictable patterns over time. The Stock Analyst provides various price and volume technical indicators which can be used to track and predict the general movement of the price of a stock. How to use each indicator as well as the effectiveness of an indicator under various market conditions are discussed. The indicators afforded the small investor by The Stock Analyst should be used in many cases to confirm and be confirmed by another. Through this confirmation process, market timing can be such that buying low and selling high is possible with a relatively high degree of confidence. Successful investing depends heavily upon experience, cool emotions, and a consistent method of technical analysis of individual stocks. The investor should develop an investment strategy which incorporates stop-loss measures and the use of fundamental and technical analysis to base buy and sell decisions upon. The trader should still expect to encounter some losing trades; however, by setting a stop-loss point and limiting losses, the difference between the profitable trades and losers will result in an overall profit. The Stock Analyst is a necessary tool any investor can use in the technical analysis of market securities to enhance the opportunity to profit in today's stock market. -------------------------------------------------------------------- The remainder of Chapter 4 is reserved for owners of The Stock Analyst. -------------------------------------------------------------------- APPENDICES Individuals who invest in the Stock Market should obviously know what they are doing. The user is urged to read as much as possible concerning investing in the Stock Market. There is no substitute for the combination of knowledge and experience. Appendix A lists the resources used to prepare The Stock Analyst software and this manual. Appendix B lists a few books which deal with Technical Analysis as well as investing in the Stock Market. APPENDIX A: REFERENCES "How %R Spots Reversals, Confirms Valid Trends", Elder, Alexander, Futures, March 1987. "Using Stochastics to Catch Early Trends and Reversals", Elder, Alexander, Futures, 1987." Commodity Channel Index: Tool for Trading Cyclic Trends", Lambert, Donald R., Commodities, October 1980. "How to use MACD to Catch Price Trends Early", Elder, Alexander, Futures 1987. "Technical Analysis Explained", Pring, Martin J., Copyright (C)1985. "The Encyclopedia of Technical Market Indicators", Colby, Robert W. and Meyers, Thomas A., Copyright (C) 1988. "The Technical Analysis of Stocks, Options, and Futures", Eng, William F., Copyright (C) 1988. APPENDIX B: SUGGESTED READING "Technical Analysis Explained", Pring, Martin J., Copyright (C)1985. "The Encyclopedia of Technical Market Indicators", Colby, Robert W. and Meyers, Thomas A., Copyright (C) 1988. "The Technical Analysis of Stocks, Options, and Futures", Eng, William F., Copyright (C) 1988. "How to Make Money in Stocks", O'Neil, William J., Copyright (C)1988. "Technical Analysis: A Personal Seminar", New York Institute of Finance, Copyright (C) 1989. INDEX - A - Accumulation ... 3.4.1, 3.4.2, 3.4.5, 4.4, 4.17 Advanced/Decline Line ... 1.3.3, 2.4.1, 2.4.2, 2.4.3, 3.5, 3.5.1, 4.12 Advance/Decline Momentum ... 3.6.10 Advance/Decline Ratio ... 3.5.2, 4.2 - B - Back-up The Stock Analyst Disk ... i, 1.1.3 Booting The Stock Analyst Disk ... 1.1, 1.1.2, 1.2 Breadth Advance/Decline Indicator ... 3.5.3, 4.2 Breakout ... 3.7.6, 4.16 - C - CBOE ... 1.3, 1.3.4, 2.0, 2.4.1, 2.4.2, 2.4.3, 3.5 3.5.4, 4.3 CBOE Put/Call Ratio ... 1.3.4, 3.5, 3.5.4, 4.3 Call ... 4.3 Chaikin Oscillator ... 3.4.1, 4.4 Chaikin, Marc ... 4.4 Change Directory ... 2.2.2, 3.2.5 Chart Analysis ... 4.16 Clear Screen ... 3.2.4 Colby, Robert W. ... Appendix A, Appendix B Commodity ... 1.3.2 Commodity Channel Index ... 3.3.1, 3.6.1, 4.5, Appendix A Contents, Disk ... 1.1.2 Table of ... ii Crossing of Indicators ... 3.7.7, 4.2, 4.7, 4.8, 4.10 Cycle ... 3.7.5, 4.5, 4.9 - D - Default Indicator Period File ... 1.3.6, 2.3.1, 2.4.6 Defaults, Advance/Decline Momentum ... 3.6.10 Commodity Channel Index ... 3.6.1 Cycle Line ... 3.7.5 Directional Movement Indicator ... 3.6.2 Editing ... 2.4.6, 3.6, Indicator Moving Average ... 3.6.12 Lane's Stochastics ... 3.6.3 Linear Regression ... 3.6.4 Moving Average ... 3.6.5 Positive/Negative Volume Index ... 3.6.9 Price Rate-of-Change ... 3.6.6 Relative Strength Index ... 3.6.7 Reset ... 3.6.1 Trading Band Percentage ... 3.6.11 Williams' Percent R ... 3.6.8 Directional Movement Indicator ... 3.3.2, 4.6 Distribution ... 3.4.2, 3.4.5, 4.4, 4.17 Divergence ... 3.3.1, 3.7.2, 4.2, 4.5, 4.7, 4.15, 4.18, 4.19 Dividend, Stock ... 2.4.5 Dow Jones Industrial Average ... 1.1.2, 3.7.2, 4.2 - E - Edit Defaults ... See Defaults Edit Equity File ... 2.4 Edit Master File ... 2.3 Edit, Add Data Entry ... 2.4.1 Add Equity Entry ... 2.3.1 Default Indicator Period File ... 2.4.6 Delete Data Entry ... 2.4.3 Delete Equity Entry ... 2.3.3 Edit Data Entry ... 2.4.2 Edit Equity Entry ... 2.3.2 Elder, Alexander ... Appendix A Eng, William F. ... Appendix A, Appendix B Envelope Trading Channel ... 3.6.11, 3.7.6, 4.16 - F - File, .bmap ... 1.1.2 Format of Advance/Decline ... 1.3.3 Format of CBOE Put/Call ... 1.3.4 Format of Default Indicator Period ... 1.3.6 Format of Equity Data ... 1.3.2 Format of Master Index ... 1.3.1 Format of S&P500/S&P100 ... 1.3.5 system-configuration ... 1.1 Fosback, Norman ... 4.12 Fundamental Analyst ... 4.1 - G - General, The Stock Analyst: ... 1.1, 2.1, 3.1, 4.1 Granville, Joe ... 4.11 Graph Data ... 3.7.1, 3.7.2 Graphic Dump ... 1.1, 1.1.1, 3.2.3, 3.3, 3.4 - H - Histogram ... 3.3.7, 4.10 - I - Indicator, Contrarian ... 4.3 Crossing of ... 3.7.7, 4.7, 4.9, 4.10, 4.12 Market Breadth ... 3.5, 4.2, 4.3 Moving Average of ... 3.6.10, 3.7.7 Price ... 3.3, 3.6 Volume ... 3.4 - K - Kickstart ... 1.1, 1.2 - L - Lambert, Donald R. ... Appendix A Lane, Dr. George ... 3.3.4, 3.6.3, 4.7 Least Squares ... 3.7.8 Linear Regression ... 3.3.5, 3.6.4, 4.8 Load, Stock Data ... 3.2.1 Stock Updater ... 1.2, 1.2.1 Stock Analyst ... 1.2, 1.2.2 - M - MACD ... 3.3.6, 3.7.7, 4.10, Appendix A Meyers, Thomas A. ... Appendix A, Appendix B Momentum ... 3.3.8, 4.15 Momentum Oscillator ... 3.3.8, 3.5.2, 4.13 Moving Average, Centered ... 3.3.7, 4.9 Exponential ... 3.3.6, 3.3.7, 3.7.7, 4.9, 4.10 Simple ... 3.3.6, 3.4.3, 3.5.4, 4.3, 4.7, 4.9 Uncentered ... 4.9 Unweighted ... 3.3.6, 4.9 Weighted ... 4.9 Moving Average Convergence Divergence ... 3.3.6, 3.7.7, 4.10, Appendix A - N - Negative Direction Indicator ... 3.3.3, 3.6.2, 4.6 New York Institute of Finance ... Appendix B - O - O'Neil, William J. ... Appendix B On-Balance Volume ... 3.4.2, 4.11 Oscillator, Momentum ... 3.3.8, 4.13 Price ... 3.3.4, 3.3.10, 3.3.11, 4.5 Overbought ... 3.3.1, 3.3.8, 3.3.10, 3.3.11, 3.5.2, 4.5, 4.7, 4.13, 4.18, 4.19 Overlay, Price ... 3.7.1, 3.7.2 Oversold ... 3.3.1, 3.3.8, 3.3.10, 3.3.11, 3.5.2, 4.5, 4.7, 4.13, 4.18, 4.19 - P - Percent R ... 3.3.11, 3.6.8, 4.19, Appendix A Positive Direction Indicator ... 3.3.3, 3.6.2, 4.6 Positive and Negative Volume Index ... 3.4.3, 3.6.9, 3.7.7, 4.12 Price and Volume Trend ... 3.4.4, 4.14 Price Indicator ... 3.3 Price Rate-of-Change ... 3.3.8, 3.6.6, 4.13 Pring, Martin J. ... Appendix A, Appendix B Print, Data ... 2.2.1, 3.2.2 Screen ... 1.1, 1.1.1, 3.2.3, 3.3, 3.4 Project, Stock Analyst ... 3.2 Stock Updater ... 2.2 Put/Call Ratio ... 1.3.4, 2.4.1, 2.4.2, 2.4.3, 3.5, 3.5.4, 4.3 Put ... 4.3 - Q - Quit, Stock Analyst ... 3.2.6 Stock Updater ... 2.2.3 - R - Rate-of-Change, Price ... 3.3.8, 3.6.6, 4.13 Relative Strength ... 3.3.9, 4.15 Relative Strength Index ... 3.3.10, 3.6.7, 4.18 Resistance, Line of ... 3.7.3, 4.16 - S - Software License Agreement ... i, Back Cover Stochastics ... 3.3.4, 3.6.3, 4.7, Appendix A Stock Analyst ... 3.0 Stock Analyst, Executing ... 1.2, 1.2.2 General ... 3.1 Stock Dividend ... 2.4.5 Stock Split ... 2.4.4 Stock Updater ... 2.0 Stock Updater, Executing ... 1.2, 1.2.1 General ... 2.1 Support, Line of ... 3.7.3, 4.16 system-configuration file ... 1.1 - T - Technical Analysis ... 4.0, 4.1, Appendix A, Appendix B Technical Analyst ... 4.1 Tool, Cycle Line ... 3.7.5 Graph Data ... 3.7.1 Extend Chart ... 3.7.4 Graph ... 3.7 Indicator Moving Average ... 3.7.7 Least Squares ... 3.7.8 Overlay Price ... 3.7.2 Trading Band ... 3.7.6 Trend Line ...3.7.3 Trading Channel ... 3.7.6, 4.16 Trend Line ... 3.7.3, 4.16 Trend, Bear ... 3.3.5, 4.2, 4.3, 4.5, 4.7, 4.9, 4.10, 4.11, 4.16, 4.18, 4.19 Bull ... 3.3.5, 4.2, 4.3, 4.5, 4.7, 4.9, 4.10, 4.11, 4.16, 4.18, 4.19 Trend, Continuation ... 3.3.8, 4.15, 4.11 Doubtful ...4.4, 4.11, 4.14, 4.17 Neutral ... 3.3.2, 3.3.4, 3.3.11, 4.5, 4.7, 4.9, 4.16, 4.18, 4.19 Reversal ... 3.3.1, 3.3.4, 3.3.5, 3.3.11, 3.7.2, 4.2, 4.5, 4.7, 4.9, 4.10, 4.11, 4.13, 4.15, 4.16, 4.18, 4.19, Appendix A Trading ... 3.3.3, 3.3.4, 3.3.11, 4.5, 4.7, 4.9, 4.18, 4.19 Trigger Line ... 3.3.6, 3.7.7, 4.3, 4.5, 4.10, 4.13 - V - Volume Accumulation and Distribution ... 3.4.5, 4.17 Volume Indicator ... 3.4 - W - Whipsaw ... 3.6, 3.6.1, 3.6.2, 3.6.3, 3.6.4, 3.6.6, 3.6.7, 3.6.8, 3.6.9, 4.5, 4.9 Wilder, J. Welles ... 3.3.10, 3.6.7, 4.18 Williams Percent R ... 3.3.11, 3.6.8, 4.19, Appendix A Williams, Larry ...3.3.11, 4.19 Workbench ... 1.1, 1.1.2, 1.2 - Z - Zoom-in ... 3.2.1 Zoom-out ...3.2.1