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Worden’s Market Indicators (T2s)

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Craig_S

Posted : Saturday, December 10, 2005 5:02:45 PM

Worden Trainer

Joined: 10/1/2004
Posts: 18,819

For reference from our help files:

With all of the powerful filtering and organizational capabilities of TeleChart, some of its unique offerings have a tendency to go unnoticed. Our list of 23 Market Indicators is just such an offering. We hope you don't make the mistake of overlooking these useful tools. Most investors are familiar with the advance / decline line, but, with TeleChart, that's just the beginning. TeleChart goes beyond counting the number of stocks moving higher and lower in the market. TeleChart asks &quot;How High?&quot; and How Low?. TeleChart shows you the percentage of stocks above and below their moving averages. TeleChart even counts stocks attaining new highs versus new lows. TeleChart does it all, so all you do is browse the charts with a few clicks per day.

TeleChart gives you a full toolbox of powerful big-picture indicators designed to help you perfect your market timing. Just as standard technical indicators give you insight into overbought and oversold conditions in individual stocks, this collection of indicators helps you spot trends in the market as a whole, so you can ride the big rallies, and cash in before major market corrections.

Worden’s Market Indicators, known as T2s because each symbol begins with T2, are calculated using the daily market activity of the NYSE. They are internal market statistics which are calculated by counting stocks that meet certain criteria and then publishing the results as a percentage value between 1 and 100. T2107 &quot;Percentage of stocks above their 200-day moving average&quot; for example, counts the number of stocks currently trading above their 200-day price moving average and then plots this as a percentage. So if the daily value of T2107 is 14, you know that 14% of the stocks on the NYSE traded above their 200-day PMA.

Most other indicators and indexes are based on price and will usually give a good reading of the overall trend of the market. T2s, however, are count-based indicators that give you a sort of &quot;behind the scenes&quot; look at the market. By counting every issue on the NYSE, T2s show the true volatility of each issue. They show you things like the fact that advancing issues are outpacing declining issues; when the number of stocks trading above their 200-day price moving average is declining; when the number of stocks reaching new highs each market day is increasing, etc. You can then compare these with a major market index to see how the activity of every stock on the NYSE compares to the trend of the overall market.

When plotting a comparison of a T2 and a market index, you’ll want to set your scaling to Arithmetic. TeleChart will plot the T2 and the market index on independent scales. If you use logarithmic scaling, the T2 and the index are plotted on a common-linked log scale and you won’t be able to compare the true volatility of each.

T2100 Advance/Decline Line

You have probably heard of the advance/decline line. It is calculated by subtracting the number of declining stocks for the day from the number of advancing stocks for the day. It is a cumulative indicator meaning that each day’s calculation is added (or subtracted) from the previous day’s indicator value.

Our advance/decline line is slightly different from the common one. First of all it is calculated only from NYSE common stocks. Secondly, it is calculated from the percentage of advancing stocks minus the percentage of declining stocks. For example, if 55% of the NYSE was up today and 30% was down, the net change today would be 25 (55% - 30%). This method makes it easier to quantify advances and declines on the chart. In the example above where the net change is 25, you know at a glance that advances led declines by 25%. If , for instance, the advance/decline line drops 90 points on a given day, you know that 90% of the market was down that day.

Let’s take a look at a chart. Click the WatchList pulldown and select All Worden’s Market Indicators and set the sort to Ticker symbol. Click on T2100 to display it. Set your zoom to level 1 and time frame to a weekly chart. This should display a chart going back to around 1990. Now plot a comparison graph (CTRL-C) using the S&amp;P 500 index (SP-500) as the comparison symbol.

Note: When viewing symbols such as the T2 indicators that only have one price point for each market day (no open, high or low), you’ll want to set the price graph to a line chart. CTRL-B will toggle the chart mode between bar, line and candlestick charts. Press CTRL-B until a line chart is displayed.

You probably have your chart scaling set to Logarithmic and the Advance/Decline line probably looks rather flat and unexciting. That’s because with logarithmic scaling, both symbols are plotted on the same scale. That’s fine for comparing a stock to a market index, but in this case we want to see how the swings in the advance decline line compare to the overall trend of the market. Set the scaling to Arithmetic and you’ll see quite a different chart. When scaling is set to arithmetic, each graph is scaled independently. The price scale to the right shows the prices for the active symbol (in this case T2100). The price scale of the comparison symbol (SP-500) is not displayed. However, you can easily swap the active and comparison symbol by pressing CTRL-F. This makes the SP-500 the active symbol and displays its price scale. Press CTRL-F again to make T2100 the active symbol again.

The price scales of each symbol are not really relevant in this comparison because what we’re looking for here is the big picture. You can see that since 1989, the advance/decline line has been steadily decreasing until the recent upturn in the second half of 1997 but the market, as represented by the S&amp;P 500, has been steadily increasing. What does this mean?

The downward momentum of the advance/decline line indicates that the number of declining issues has been steadily leading the number of advances, but the majority of the money has been in the advancing issues. We know this because the market has continued upward as represented by the S&amp;P 500 market index. This is something you would not be able to see using a price-based indicator or index because it would more or less follow the same pattern as the S&amp;P 500.

T2101 Absolute Breadth Index

This index was developed by Norman Fosback. It is simply the absolute value of the number of advancing issues minus the number of declining issues. For example, if the number of advancing issues is 1200 and the number of declining issues is 600, the Absolute Breadth Index equals 600. If the number of advancing issues is 400, and the number of declining issues is 900, the Absolute Breadth Index equals 500. Remember, the sign is ignored in the calculation of an absolute number.

For charting purposes, we take the daily Absolute Breadth value (calculated as described in the previous paragraph) and publish it as a percentage increase or decrease from the previous day’s value. For example, let’s say yesterday’s Absolute Breadth value was 1000 and the chart shows a value of 31. Now, today’s calculated value comes in at 960:960 / 1000 = .96, which is a 4% decrease from the previous day, so today’s reading would be 27, a 4% decrease.

The theory behind the Index is that when the absolute difference between the number of advancing and declining stocks is high, you are more likely to be near a market bottom than a top since a selling climax, with most stocks participating, often occurs near a market bottom. On the other hand, a low Absolute Breadth Index reading is more likely to signify the slow topping activity that frequently occurs at a market peak.

T2102 Bolton-Tremblay Indicator

This is a cumulative advance-decline indicator that uses the number of unchanged issues as a basic component. It is computed in five steps. First, divide the number of advancing issues by the number of unchanged issues. Second, divide the number of declining issues by the number of unchanged issues. Third, subtract the declining ratio from the advancing ratio. Fourth, calculate the square root of the difference. Fifth, add the square root to the previous day’s Bolton-Tremblay Indicator, respecting the sign (plus if there were more advances, minus if more declines).

For example, if there are 1500 advancing issues and 700 declining issues and 800 unchanged issues, the Bolton-Tremblay Indicator is calculated as follows:

Todays’s Bolton-Tremblay Indicator = Yesterday’s Bolton-Tremblay Indicator + Square Root of (1500/800 – 700/800 = Yesterday’s Bolton-Tremblay Indicator + 1

On the other hand, if there had been 700 advancing issues and 1500 declining, today’s Bolton-Tremblay Indicator equals yesterday’s value minus 1.

The Bolton-Tremblay Indicator should be interpreted in a manner similar to the advance-decline line. In fact, if you plot a comparison graph using T2100 as the comparison symbol, the two graphs are almost identical. Keep in mind that the actual value of the indicator is far less important than its trend.

T2103 Zweig Breadth Thrust

Developed by Martin Zweig (The Zweig Forecast, PO Box 5345, New York, NY 10150), this indicator is calculated by taking a 10-day moving average of the number of advancing issues divided by the number of advancing issues plus the number of declining issues. Since it is a percentage indicator, it cannot go below 0 or above 100. However, it is rare that it goes below 40 or above 60.

Greg Morris (G. Morris Corporation, Forest Park Tower, 9500 Forest Lane, Suite 301, Dallas, TX 75243-5914) claims that Martin Zweig says any time this indicator thrusts from below 41 to above 60 in under 10 days that the market will be significantly higher 18 months later. We find the indicator useful as an overbought/oversold indicator, also.

T2104 Cumulative Volume Index

This indicator is sometimes called up volume/down volume. It is calculated by taking the volume of the advancing issues and subtracting the volume of the declining issues. It is a cumulative indicator, so the value is meaningless. This indicator is interpreted the same way the advance/decline line is interpreted. If it begins to trend down while the averages are trending up, it is a bearish sign. If it begins to trend up while the averages are trending down, it is a bullish sign.

T2105 High Low Logic Index

Developed by Norman Fosback, the Index is computed as the lesser of the number of new highs or new lows divided by the total number of issues traded. Daily or weekly NYSE data typically is used in the calculation.

The concept behind the indicator is that either a large number of stocks will reach new highs or a large number will establish new lows, but normally not both at the same time. Since the High Low Logic Index is the lesser of the two ratios, high readings are infrequent.

When a high indicator reading does occur, it signifies that market internals are inconsistent with many stocks reaching new highs at the same time that many stocks establish new lows. Such a condition is considered bearish for stock prices.

Extreme low indicator readings reveal a uniform market. They are considered bullish for stock prices.

T2106 McClellan Oscillator

The McClellan Oscillator is reported each day by many financial news services. Their reported value will almost always be different than our value because, as mentioned earlier, we use every stock on the NYSE. The overall trend of the indicator, however, will be the same.

The McClellan Oscillator is calculated by subtracting a 39 day moving average of (Advances – Declines) from a 19 day moving average of (Advances – Declines). It not only works as an overbought/oversold indicator, it works fairly well at making short-term trend changes when it crosses the zero line.

Here again it is very important that you set your chart scaling to Arithmetic because the McClellan Oscillator will be negative on some market days and negative values cannot be displayed on a Logarithmic scale.

Note: Scaling must be set to Arithmetic for the chart to be displayed properly.

T2118 McClellan Summation Index

The McClellan Summation Index is simply a cumulative indicator of the McClellan Oscillator. It also can be interpreted as bullish or bearish when it crosses over the zero line. We find crossovers on a 10- or 20-day moving average of this indicator to make for a great trend following system. It tends to get you into trends early and keep you in…very few whipsaws.

Note: Scaling must be set to Arithmetic for the chart to be displayed properly.

This next section, beginning with T2107, covers T2s that count the number of stocks on the NYSE trading above or below their moving averages. When plotted against a market index such as the S&amp;P 500 (SP-500) or the Russell 2000 (RUT-X), you can see how the market reacted when large numbers of stocks were trading above or below their moving averages and what patterns to look for in the future.

T2107 Percentage of stocks trading ABOVE their 200-day moving average

In this T2, every stock on the NYSE is represented because (except in rare cases) stocks do not trade exactly AT their 200-day moving average. This is why there is no T2 for Percentage of stocks trading BELOW their 200-day moving average. One quick glance at the indicator on a day when it reports a value of say 21 instantly tells you that 21 % of stocks on the NYSE are trading above and 79% are trading below their 200-day price moving average.

This is very valuable information because it’s a good general indication of whether the overall market is overbought (spike up in T2107) or oversold (spike down).

T2108 Percentage of stocks trading above their 40-day moving average

Very similar to T2107 above, but this indicator will be a little quicker moving because there is less resistance to a stock breaking out above its 40-day moving average versus its 200-day. Here again there is no complimentary T2 for stocks below their 40-day average because every NYSE stock is covered by this one T2.

T2109 through T2116 indicate the percentage of stocks trading 1 or 2 channels above or below their moving averages. The channels are envelope channels. One channel is equal to one standard deviation from the moving average and two channels equals 2 standard deviations from the moving average.

Tip: When plotting envelope channels on a chart in TeleChart, two parameters have to be entered: Period and Width. The Width parameter determines the number of standard deviations from the moving average (Period parameter) that the envelope channels will be drawn. A Width of 10 equals 1 standard deviation, a width of 20 equals 2 standard deviations, and so on.

These T2s show you the extremes. Stocks that not only are trading above or below their moving averages, but those that have exceeded or fallen below their averages by as much as 2 standard deviations.

T2109 Percentage of stocks trading 1 channel above their 200-day moving average
T2110 Percentage of stocks trading 1 channel above their 40-day moving average
T2111 Percentage of stocks trading 2 channels above their 200-day moving average

In a Worden note on February 18, 1998, Peter Worden made some compelling observations of the overall market by plotting a comparison of T2111 and SP-500 (Standard &amp; Poor’s 500 index). Let’s look at his comments and the chart of T2111 vs. SP-500. Press the letter J to open the Jump To dialog. Enter the symbol T2111 and click OK. Make sure the pulldown in your Notes window is set to All Notes. Here you can read Peter Worden’s comments on the market and view the attached chart of T2111 vs. SP-500 by clicking on the View Attached Chart button (paperclip).

T2112 Percentage of stocks trading 2 channels above their 40-day moving average
T2113 Percentage of stocks trading 1 channel below their 200-day moving average
T2114 Percentage of stocks trading 1 channel below their 40-day moving average
T2115 Percentage of stocks trading 2 channels below their 200-day moving average

T2115 points out instances where too many stocks have surged or plummeted at once by showing you what percentage of stocks are trading 2 channels below their 200-day moving average. The channels are envelope channels and each channel represents one standard deviation from the 200-day moving average. To make the count for T2115, a stock must have fallen very far very quickly in recent trading. Peaks in T2115 naturally coincide with lows in the market because if a large number of stocks are trading well below their 200-day moving averages, then the market is going to be down.

To best understand T2115, pull up the chart and plot a comparison graph using the Dow Jones Industrial Average (DJ-30). Set the time frame to weekly and remember to set your scaling to arithmetic when using the T2 indicators compared to a market index for a true picture of volatility. It also helps to pull the upper splitter bar all the way to the bottom of the chart so you can maximize the viewing area of the top window.

Look at the inverse relationship between T2115 and the Dow during the market surge in the second half of 1997. Just after a pullback in the market around April of 1997, the Dow surged from around 6400 to an amazing 8200 points in early August, a 22% increase. The value of T2115 dove from 14 (14% of the market trading below their 200-day averages) to less than 2.

Although you can see this pretty clearly on the chart, you may be asking &quot;So how is this going to help me in the future?&quot; Well, when T2115 spikes up, and assuming the economy is stable, it’s a good indication that there are some good values out there because this also mean that P/E ratios have gone down. Scroll your chart back to 1990 using the history scroll bar at the bottom of the chart. Look at how T2115 spiked up during the pullback in the second half of the year. T2115 peaked as high as 35%, and we haven’t seen a value higher than 14 since. This was just before the Dow took off on its upward run throughout the 1990s.

T2116 Percentage of stocks trading 2 channels below their 40-day moving average

Look for the same patterns described in T2115. Keep in mind that with a 40-day moving average, you will probably see more frequent spikes and higher percentages that with a 200-day moving average but this may give a better short-term picture.

T2117 52-week New High / New Low Ratio

This indicator is calculated as follows: new highs for the last 52 weeks divided by new highs + new lows. Another indicator which moves between 0 and 100, this one gets closer to 0 and 100 than some of the others. It’s a good overbought/oversold indicator as well as a good confirmation/non-confirmation indicator when you plot a moving average of it.

T2120 26-week New High/New Low Ratio

New highs for the last 26 weeks divided by new highs + new lows. Research results have revealed a bullish tendency at extreme high readings and a slightly bearish tendency at extreme low readings.

T2121 13week New High/New Low Ratio

New highs for the last 13 weeks divided by new highs + new lows. Research results have revealed a bullish tendency at extreme high readings and a slightly bearish tendency at extreme low readings.

T2122 4week New High/New Low Ratio

New highs for the last 4 weeks divided by new highs + new lows. Research results have revealed a bullish tendency at extreme high readings and a slightly bearish tendency at extreme low readings.

T2123 Cumulative 4week New High/New Low

This is simply the difference between the number of issues reaching new highs (during a 4-week period) and the number of issues reaching new lows (during the same 4-week period). Research results revealed a slight bullish tendency at extreme high readings and a slight bearish tendency at extreme low readings. However, results were not significant enough to warrant reliance on this indicator for market timing purposes.

- Craig
Here to Help!

Stmjd74

Posted : Wednesday, December 14, 2005 11:01:51 PM

Registered User
Joined: 12/18/2004
Posts: 180

Craig, it was really cool of you to put all of this together. I must say that I certainly need to study these more closely. This should keep me occupied for some time to come.

Thanks.

Craig_S

Posted : Thursday, December 15, 2005 8:18:26 AM

Worden Trainer

Joined: 10/1/2004
Posts: 18,819

I wish I could take the credit... I only copied from the help file. This info is available on your computer if you search your help file for T2

I put it here so I could point people to it on the boards. I am glad you are getting value from my posting. Thanks!

- Craig
Here to Help!

jochen121

Posted : Monday, March 6, 2006 6:18:20 PM

Registered User
Joined: 2/14/2006
Posts: 23

do you also have a Up-Down Volume Ratio available? that means simply the total daily up volume / the total daily down volume.
thank you very much

Craig_S

Posted : Monday, March 6, 2006 7:17:47 PM

Worden Trainer

Joined: 10/1/2004
Posts: 18,819

Did you check this out?

T2104 Cumulative Volume Index

This indicator is sometimes called up volume/down volume. It is calculated by taking the volume of the advancing issues and subtracting the volume of the declining issues. It is a cumulative indicator, so the value is meaningless. This indicator is interpreted the same way the advance/decline line is interpreted. If it begins to trend down while the averages are trending up, it is a bearish sign. If it begins to trend up while the averages are trending down, it is a bullish sign.

- Craig
Here to Help!

bustermu

Posted : Tuesday, March 7, 2006 1:36:56 AM

Registered User
Joined: 1/1/2005
Posts: 2,645

QUOTE (jochen121)

do you also have a Up-Down Volume Ratio available? that means simply the total daily up volume / the total daily down volume.
thank you very much

Maybe. Please bring up the Symbol NUVOL. Now plot Relative Strength using Comparison Symbol NDVOL. The RS curve is the NYSE UpVolume DownVolume Ratio. You can plot the equivalent for the Nasdaq and the AMEX.

I do not know the definition of UpVolume and DownVolume.

Thanks,
Jim Murphy

hicraig3

Posted : Thursday, November 8, 2007 8:46:23 AM

Registered User
Joined: 12/27/2005
Posts: 83

On the T2104, it says the This indicator is interpreted the same way the advance/decline line is interpreted. If it begins to trend down while the averages are trending up, it is a bearish sign. If it begins to trend up while the averages are trending down, it is a bullish sign.

What averages? Is this a MA on itself or a comparison to another index?

Just learning, thanks!
Craig.

StockGuy

Posted : Thursday, November 8, 2007 9:40:14 AM

Administration

Joined: 9/30/2004
Posts: 9,187

"The averages" refers the Dow, SP-500, etc. Any major market average.

jz94117

Posted : Saturday, June 14, 2008 3:07:57 PM

Registered User
Joined: 7/21/2007
Posts: 188

Hi Big Guys -

Re T2123 -- since this is the difference between New Highs and New Lows, shouldn't this be plotted around a zero center line? Also, since so many technical analysis tutorials talk about a NH-NL chart involving 52 weeks, and since the WSJ and other major financial papers report NH's and NL's over a 52 wk period, can't we have a 52 wk version of T2123? Something simple for us non-quant guys? Gosh, I feel like such a dummy.

I looked at T2105, but couldn't figure out how to relate it to Dr. Elder's discussion of NH-NL analysis in his easy to read book Trading for a Living.

One more thing, PLEASE modify Telechart so that we can look at different charts at the same time. I would love to look at AAPL IBM S&P and maybe VIX--X in four different charts at the same time. Please?

Finally, I had the opportunity to jump to Platinum when you folks advertised the special offer, but us part time investors in SF, CA who wake up after the markets open, miss all the chats with Mr. Worden which seem to mainly occur pre-market (at least that's what I gather from the snippets of chats I've read under "Charts with Notes"). Shoot, I'll never be able to chat with Mr. Worden, unless I start keeping the weirdest hours here. Oh well. How often does Mr. Worden chat, like in the afternoons?

Thanks. You trainers are the BEST. I appreciate your patience. I know you get a lot of repetitive questions, but I searched the archives for a 52 week simple version of T2123 because (frankly speaking, it's easier for me to understand subtraction than ratios (or division) as in the T2105). Ha.

God bless,
Jim in SF (user jz94117)

jz94117

Posted : Saturday, June 14, 2008 3:15:19 PM

Registered User
Joined: 7/21/2007
Posts: 188

PS - Do we have a TRIN (Trader's Index) as described by Alexander Elder?

Thanks again,
Jim.

Bruce_L

Posted : Monday, June 16, 2008 10:31:51 AM

Worden Trainer

Joined: 10/7/2004
Posts: 65,138

QUOTE (jz94117)

Re T2123 -- since this is the difference between New Highs and New Lows, shouldn't this be plotted around a zero center line?

No, it is a Cumulative Indicator and its actual value doesn't matter.

Dealing with OBV & MS in PCF's - how to interp their "values"

QUOTE (jz94117)

Also, since so many technical analysis tutorials talk about a NH-NL chart involving 52 weeks, and since the WSJ and other major financial papers report NH's and NL's over a 52 wk period, can't we have a 52 wk version of T2123? Something simple for us non-quant guys?

The best place to make suggestions is in the Comments / Suggestions forum. While I might normally move a topic with suggestions from elsewhere into this forum, this topic is a frequently referenced topic that should remain where it is.

QUOTE (jz94117)

I looked at T2105, but couldn't figure out how to relate it to Dr. Elder's discussion of NH-NL analysis in his easy to read book Trading for a Living.

I haven't read the book. Even if I had, the trainers can't give setting, interpretation or investment advice (although I'm not sure if the question would fall into this category - it might just require an explanation of the similarities or differences between the two).

QUOTE (jz94117)

One more thing, PLEASE modify Telechart so that we can look at different charts at the same time. I would love to look at AAPL IBM S&P and maybe VIX--X in four different charts at the same time. Please?

You already can look at up to eight Charts simultaneously in TeleChart.

View multiple symbols or multiple views of the same symbol using Layouts

QUOTE (jz94117)

Do we have a TRIN (Trader's Index) as described by Alexander Elder?

Again, I haven't read the book, but you may wish to review the following:

Market Stats, TICK and TRIN

-Bruce
Personal Criteria Formulas
TC2000 Support Articles

jz94117

Posted : Monday, June 16, 2008 11:46:05 PM

Registered User
Joined: 7/21/2007
Posts: 188

"You already can look at up to eight Charts simultaneously in TeleChart."

Screw me!!

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