By Stephen Suttmeier, Jue Xiong, MacNeil Curry
A primer masking the fundamentals of development, Momentum and different technical signs and techniques.
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Additional info for Merrill Lynch Market Analysis Technical Handbook
Sample text
Generally speaking, fund managers have the lowest cash ratios at market tops, and the highest ratios at market bottoms. The chart below, courtesy of Ned Davis Research, shows stock mutual fund cash levels at the lowest since the stock market highs of the early 1970s. A relatively small number of customer redemptions could force fund managers to sell stock in order to raise cash. 47 C onc ep ts in techn ic al ana lys is 1 4 Ma y 201 3 Source: Ned Davis Research Insider Transaction Indicators Until now, we’ve discussed sentiment indicators that pertain to the broad market and have contrary implications.
The Volume Intensity Model is bullish or positive when the VIM Accumulation line is above the VIM Distribution line. This suggests that up volume or buying is stronger than down volume or selling. When the market is rallying, a positive VIM is a sign of a healthy advance in which buyers are stronger than sellers. In other words the VIM is confirming the rally. The VIM is bearish or negative when the VIM Distribution line is above the VIM Accumulation line. This suggests that down volume or selling is stronger than up volume or buying.
What is important is the relative rate of advance or decline of the plots. The cumulative A-D Line is most useful when it diverges from, or goes against, the prevailing trend in the major stock indices. The A-D Line’s lead-time varies materially across market cycles, but a trusty rule of thumb is roughly six to nine months for market tops. The divergence itself should be treated only as a warning sign and not as an outright signal to sell or go short. We must wait for a turn in the trend of the major indices before concluding that these indices are due for any significant decline.