The ROC Bull

 

Rate of Change is an Oscillator. Oscillators are indicators that are designed to determine whether a market is “overbought” or “oversold.“ An oscillator is generally plotted at the bottom of a graph, below the price action. As the name implies, an oscillator is an indicator that goes back and forth within a range. “Overbought” and “oversold” conditions (the market extremes) are indicated by the extreme values of the oscillator. In other words, as the market moves from overbought, to fairly valued, to oversold, the indicators have different ranges in which they vary. Often, the oscillator will be scaled to range from 100 to -100 or 1 to -1, but it can also be unbounded (without a fixed range) like the rate of change.
The above was the conventional interpretation, non conventionally a ROC can be also used as a cycle. Because just like a cycle, the ROC oscillated from a bottom to a top and back. Here we have also plotted the yearly ROC on the DOW Jones Industrial average. The aim is to understand a large cycle on the global popular indices. And whether the cycle is bottoming or topping? Whether we are in a period of extended uncertainty or is it a great bottoming opportunity in a few weeks? One should remember that sentiment is not going to be positive at a market or cycle low. The larger or more significant the low, the more worried and negative the sentiment.
ROC and momentums are used for a default 14 periods. The yearly ROC here is for 14 years. This gives it a cycle of an average 28 years (14*2). Sometime the cycle becomes a bit larger and sometimes a bit smaller than the average 30 years. As you can see the last ROC cycle started in 1982 and is finishing now in 2012. This is 30 years. The last one started in 1942 and was a 40 year cycle.
There is another key observation that is visible here. A falling ROC from 2000 high has not accompanied a falling price. This same thing happened in 1965 to 1982. What does a falling ROC without falling prices mean? Despite negative seasonality, negative time, markets hold firm ground and choose to stagnate rather than fall. When markets choose to retrace in time rather than retrace in time, it’s sign of strength, consolidation and accumulation rather than otherwise. It is always essential to look at the larger picture, because larger trend dictates the smaller trend. Now with markets reeling under negativity, the short term outlook seems negative. But this larger annual outlook suggests that larger multi year trend is still positive on DOW. This report carries a ROC outlook for India, China, Brazil, MSCI Asia and Eastern Europe.
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Our Jiseki Time cycles are seasonal patterns of strength or weakness in assets. They are derived from percentile rankings from 1 to 100. The higher the percentile more the chance for an asset to weaken and worst the ranking, better the chance for the respective asset to outperform. 100 is top relative performance and 1 is worst performance. The idea is that performance is cyclical. A top performer will underperform in future and vice versa. A top relative performer is also the worst value pick and the top relative underperformer is the best value pick. Jiseki is another name for Performance cycles, time triads and time fractals. The signals are illustrated as a running portfolio and as Jiseki Indices. These signals can be used by fund managers for relative allocations, traders for leverage bets and high net worth clients for selective trades.
Jiseki Interpretation. Signals are interpreted as crossovers between various Jiseki Cycles. All three Jiseki cycles (Jiseki 1,2 and 3) depict different time frames. Example: An asset is ranked above 80 percentile and all the three Jiseki cycles are pointing lower, this suggests a running SHORT SIGNAL. Our Jiseki Indices use different kind of exits based on price and Jiseki Cycles. We have color coded the (Jiseki 1>Jiseki 2) SHORT zones with brown sandy (burlywood) and grey (Jiseki 1>Jiseki2) for LONG SIGNALS.

Domnita Pascut is the founding member of Orpheus Capitals.  Her interest in charts and market patterns was an extension of her keen understanding of social mood and sentiment. How charts could say so much intrigued her. She worked on market patterns, economic research, cyclicality and economic history. It was her liking for history which helped her see the cyclical natures of markets and patterns. Domnita gives more weightage to conventional technical analysis, channels, trendlines, market patterns and Fibonacci. She combines all this with basic Elliott structures, performance cycles and high low close bars.