martedì 21 gennaio 2014

OBV – A Timely Indicator Today.

Joe Granville was a Technical Analyst legend. He passed away on September 7, 2013. I am sure most technicans checked the dates to see if they were not Fibonacci numbers or checked them against other Technical Analysis systems. While Joe was not an Elliott Wave man, he was a pioneer in Technical Analysis. His words could spike the market. One of his calls was for his newsletter readers to “Sell Everything” and he dropped the $SPX 2.4% that day.( Source-Bloomberg). You can read more from a nice obituary published on Bloomberg. Joe Granville . I’ll let you read that article to see why the OBV quite literally caught Joe with his pants down.

Arthur Hill published a huge amount of work in our ChartSchool, and in there he explained the OBV or On Balance Volume indicator. The link to the OBV article can be found here.

OBV – On Balance Volume

Joe focused on price action and volume. Here is the description of OBV.

On Balance Volume (OBV) measures buying and selling pressure as a cumulative indicator that adds volume on up days and subtracts volume on down days. OBV was developed by Joe Granville and introduced in his 1963 book, Granville’s New Key to Stock Market Profits. It was one of the first indicators to measure positive and negative volume flow. Chartists can look for divergences between OBV and price to predict price movements or use OBV to confirm price trends.

So why all this talk about OBV? Let’s look at the OBV on the $SPX. The important thng to notice is how the OBV behaves. We can see the breakout in December 2012 based on the Fed QE program. I think the date of the announcement was Dec 12, 2012. From a sideways pattern for 6 months, the OBV jumped to say this was the real deal in December 2013. After that, the OBV continued to stairstep higher. When I looked through the year, the previous high became support for the next pullback. See the dotted line on the indicator for the example of this. You could have used this as a guide all the way up.