|In late August 2011, I started to write a series of articles showing that the individual stocks making up the Dow Jones Industrial Average (DJIA) had entered into long-term bear trends starting with JP Morgan Chase. Figure 1 shows the stock symbol in each article published since that time. This table shows the date each article was published, the price of the stock on the day of publication, and the price as of September 23. The last column shows the gain of each stock had that stock been shorted on the day of the publication of each article. The table also shows the monthly average gain since the first article was published. At the bottom is shown the gain of the DJIA over the same time period had it been shorted. Note that some articles showed indexes. The purpose of the table is to provide an update to all these individual articles and show that statistical analysis can be used in the analysis and trading of securities.|
The lower panel of Figure 2 shows the daily price bars of United Technologies (UTX). This figure shows the 200-day linear regression trendline (solid blue line) along with the upper one sigma channel line (red dotted line), the upper two sigma channel line (red solid line), the lower one sigma channel (green dotted line), the lower two sigma channel line (solid green line), and the lower three sigma channel line (dashed green line). Besides the statistical importance of each channel line, the red channel lines represent resistance lines and the green channel lines show support.
|FIGURE 1: GAINS AND LOSSES. This table shows the gains and losses of each security since the article highlighting that security was published.|
|Graphic provided by: Microsoft Excel.|
|The bottom panel of Figure 2 shows that price moved down to its lower three sigma channel line in early August signaling a change in trend from a primary bull market to a primary bear market. The question might arise as to why the three sigma channel line signals a change in trend. The answer is that in statistics 99.97% of the data that make up the trend lays between the upper and lower three sigma channel lines. Therefore, any data that falls outside the three sigma channel line is considered to be a significant event and that significance represents the change in trend.|
|FIGURE 2: UTX, DAILY. This chart shows the daily price chart of United Technologies (UTX) in the lower panel along with its 200-day linear regression trendline and its channel lines. The top panel shows the linear regression slope indicator followed by the R-squared indicator in the next lower panel.|
|Graphic provided by: MetaStock.|
|The top panel of Figure 2 shows the linear regression slope indicator. When this indicator is above its zero line, it indicates that the security is in a primary bull market. However, note that the linear regression slope indicator has recently moved below its zero line, signaling the beginning of a primary bear market for UTX. Once this indicator has moved below its zero line, the linear regression trendline and its associated channel lines can be redrawn to show that they are now sloping in the downward direction (not shown). |
The R-squared indicator is shown in the next lower panel. This indicator has recently moved above its critical level, signaling that there is a 95% confidence level that the primary bear trend will continue.
|Figure 2 also shows that price has been moving in a shallow upward direction forming overlapping waves since early August, an indication that UTX is now correcting for its recent losses. Note that on three occasions, price moved upward toward the lower three sigma channel line before turning back down. This shows that the lower three sigma channel line is now acting as overhead resistance. Recall that once price breaks down below a support line, those support lines turn into resistance. Over the last two trading sessions, price moved below the latest higher low price, signaling that price may now be ready to resume its downtrend.|
|In conclusion, long-term statistical analysis shows UTX has entered into a primary bear market trend. The analysis also shows that price has recently been correcting for its recent losses and may now be ready to resume its downtrend.|
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