July 22, 2017
Welcome to the Bollinger Band Letter Weekly Update for 22 July 2017.
I have added one new chart to the market-timing package this week, Chart 13: Deviation from Average, and made a number of small improvements. The indicator on the new chart is actually the first market-timing technique I created on my own. It is a normalized version of momentum. The indicator starts with a moving average, in this case a 21-day, and then measures the daily deviations from that average. The actual deviations are then divided by the standard deviation of the same data used in the average. In times of low volatility momentum is magnified, while in times of high volatility momentum is scaled back. This idea in not unique to me, there are many variations out and about. I created this view on an early spreadsheet 30 some odd years ago and have always liked it.
The other feature of this chart is the market measure it features, the theoretical version of the Dow Jones Industrial Average. Today we use a real time calculation, but prior to 1982 the theoretical was the only version of the average available. Each day after the close of trading the highs of each stock in the Dow were averaged to create the high for the average. The same process was repeated to obtain the open, low and close for the average. This creates daily bars with much wider ranges than the real-time calculation employed since 1982. In fact, the only data point that is the same for both calculations is the close.
On a recent day the range of the theoretical was nearly three times the range of the actual. This is a big deal as it changes the dynamics of supply demand indicators like Intraday Intensity and Accumulation Distribution that use the highs and lows in their calculation. Jerry Smith of AIQ fame always lamented the switchover as he thought it reduced the usefulness of the those indicators, and I agree.
I am using this chart to introduce both the theoretical calculation and Deviation from Average. The next phase will involve a more logical matching of indicators and indices, and then we'll move on to adding some signals.
All of which brings us to this week's highlighted chart, Chart 10: Intraday Intensity. If you look at the right side of the chart you will see that II has dipped into negative territory on this rally, highlighting an increased level of risk. This is exactly what this approach was designed to do, alert the user to periods in which they should pay more attention. With the advance-decline line making new highs, 52-week new highs strong and the Bollinger Bands expanding with the rally our outlook for the market remains positive, with an eye on the possibility of a correction developing.
The balance between large and small stocks is still a push, with neither style gaining any real ground. For larger stocks there does seem to be interest picking up in growth.
There are no changes to the core portfolio this week, but there is one change to the ETF portfolio, sell EWP and buy EWY, which is a switch from Spain to Korea.
The Value Line Plan is in the market with a Friday sell stop of 517.54. The Value Line Geometric Average stands at 530.20.
This week's Market Timing Charts have been posted.
The current allocations are:
70% US stocks, 10% International, 10% Yield and 10% Cash.
The ETF Program portfolio holdings:
Style (21): IUSG, 3, IWF, 2, IWB, 4.
Country (21): EWO, 1, EWY, 2, EWN, 3.
Sector (27): IXJ, 1, IGV, 4, IXG, 2.
Details on our Allocations, Ice Breaker and our ETF portfolios can always be found online: https://www.bollingerbands.com/bb-letter/
Until next time, I wish you well.
John Bollinger, CFA, CMT
Copyright 2017 by Bollinger Capital Management