An analysis of the use of selected technical indicators as they relate to future direction in stock market trends

This study attempts to categorize and relate behavior patterns of selected technical indicators to the future direction in stock market trends. Six "character of the market” technical indicators are selected namely, (1)Advance- Decline Line, (2) Dow-Jones Railroad Average, (3) Odd-Lot Index, (4) Monthly Short Interest Ratio, (5) New York Stock Exchange Volume,(6) Per Cent American Stock Exchange Volume to New York Stock Exchange Volume. It is hypothesized that patterns of behavior do persist in each in dictator, as they relate to future stock market trends. Special emphasis is directed in reference to behavior pat terns in these indicators before fluctuations in the Dow-Jones Industrial Average of 5% or greater. The writings of experts in the field of the clinical analysis are examined to determine what to expect in the behavior patterns of these indicators and it is determined that many of their "rules of use" are insufficient when working on the shorter term basis. This results in the establishment of five and eleven week trends in each indicator and these are examined before each 5% fluctuation in the Dow for the period, 1960-1967. The forecasting ability of the trend line of each indicator is noted by comparing their successes before these fluctuations in the Dow and they are ranked accordingly. This leads to the conclusion that certain indicators have more discernible behavior patterns than others, based on their forecasting success. The most successful of the indicators selected are the (l) Per Cent American Stock Exchange Volume to the New York Stock Exchange Volume and, (2) The Monthly Short Interest Ratio.