|In a recent article entitled "Is XLE Diffusion Index Falling?" I showed a table of the status of the 40 Select Sector SPDR (XLE) representing the energy market sector. In that table I showed which stocks were in statistically strong bullish trends based upon their most recent 50-day price points, weak bullish trends, weak bearish trends, and strong bearish trends. In the list of those stocks in the "strong bullish trend" category was listed ConocoPhillips (COP). Today, ConocoPhillips fell from that list and is now listed among those stocks in the "weak bullish" category. To be listed among those stocks in the "weak bullish" category, the linear regression line must still be sloping upward as measured by the linear regression slope indicator, but the upslope must also be considered to be insignificant as measured by the R-squared indicator. To see what I mean, let's look at the statistical analysis. |
The lower panel of Figure 1 shows the daily bar chart of ConocoPhillips. This panel also shows the linear regression line (blue line). Note the shallow upslope to this line. This line is almost a flat line, highlighting that little upward progress has been made during the last 50 days.
|FIGURE 1: COP, DAILY. This chart shows the daily price chart in the bottom panel along with the 50-day linear regression trendline, the linear regression slope indicator in the top panel, and the R-squared indicator in the second panel.|
|Graphic provided by: MetaStock.|
|The linear regression slope indicator in the top panel peaked in early March, signaling the end of the price acceleration period that began in July 2010 when the indicator moved above its zero line. From March onward, the linear regression slope indicator has been moving in a downward direction. This down slope identifies the period of price deceleration. Price deceleration normally occurs just before a reversal in trend. A crossing to below the zero line by this indicator will signal the beginning of a weak bearish trend and price acceleration in the downward direction. As long as the linear regression slope indicator remains above its zero line, the linear regression line (blue line in the bottom panel) will continue sloping upward. So far, ConocoPhillips passes the linear regression slope test to be listed among those stocks in the "weak bullish" category, as this indicator signals that ConocoPhillips remains in an uptrend.|
|The R-squared indicator measures the significance of the uptrend of ConocoPhillips. Note that this indicator has just moved below its critical level. The critical level is a statistically derived line of demarcation that determines if a trend is significant. When the R-squared indicator moves above the critical level, it signals that a significant trend is in place, and when it moves below this line, it is a signal that there is no longer a significant trend. By "significant trend," I mean that there is a 95% probability that the uptrend will continue. When there is no significant trend, there is no longer a high probability that the uptrend will continue. As a result, ConocoPhillips also passes the test that there is no longer a significant trend in progress.|
|This analysis has shown that ConocoPhillips continues in an insignificant uptrend, thus validating that ConocoPhillips is now listed among those stocks in a "weak bullish" category. Some stocks listed in this category regain their strength and start new strong bullish trends. Some, however, continue to weaken and eventually fall into the category of "weak bearish" trends and eventually are listed among those stocks in the "strong bearish" category. |
To be listed among those stocks in "weak bearish" trends, all that has to happen now is for the linear regression slope indicator to fall below its zero line; this will indicate that the linear regression line has turned downward. Then to fall into the category of "strong bearish" trends, all that needs to occur is for the R-squared indicator to move above its critical level while the linear regression slope indicator remains below its zero line, signaling that a new significant downtrend has been established.
|I must say that once a stock moves from the "strong bullish" category to the "weak bullish" category, it has been my experience that there is a higher probability that the stock will continue to weaken and eventually fall into the "weak bearish" category and then into the "strong bearish" category, than for a stock to regain its strength and rejoin the category of the "strong bullish" trend. |
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