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STATISTICS


GE On My Radar

11/17/11 08:37:17 AM
by Alan R. Northam

This statistical analysis shows General Electric in an upward correction that when exhausted will reverse the short-term trend downward.

Security:   GE
Position:   N/A

Figure 1 shows the daily price bars of General Electric (GE). This figure shows the 200-day linear regression line (solid blue line) along with its upper 1 sigma channel line (dotted red line), and its lower 1 sigma channel line (dotted green line). Besides their statistical significance, the red channel line represents overhead resistance and the green channel line support.


FIGURE 1: GE, DAILY. This chart shows the daily price chart of General Electric in the lower panel along with its downsloping 200-day linear regression trendline and its associated channel lines. The top panel shows the linear regression slope indicator directly followed by the R-squared indicator in the middle panel.
Graphic provided by: MetaStock.
 
The bottom panel of Figure 1 shows that over the last 200 trading sessions the linear regression line has been sloping in a downward direction, indicating a long-term bear market trend. Note also that over the last 200 trading sessions, price has remained within the confines of the upper and lower 1 sigma channel lines, indicating the presence of a strong downtrend.

With the long-term trend in the downward direction, the rally from early October is corrective. Note that price has bounced off resistance from the upper 1 sigma channel line and is now moving in a downward direction.

In the bottom panel of Figure 2 is shown the upsloping 20 trading session linear regression line along with its lower 3 sigma channel line (dashed green line). Note that in late October, price started moving away from the linear regression line, and five trading sessions ago, price broke down below the lower 3 sigma channel line to signal that the short-term trend was reversing from an uptrend to a downtrend. The linear regression slope indicator in the top panel confirmed this reversal by moving below its zero line at the same time.

Looking at the middle panel of Figure 2, note that the R-squared indicator has moved up to but has not yet crossed above its critical level. A move above this critical level will indicate a 95% statistical confidence level that the short-term downtrend will continue to make lower highs and lower lows.

FIGURE 2: GE, DAILY. This chart shows the daily price chart of General Electric in the lower panel along with its downsloping 20-day linear regression trendline and its associated channel lines. The top panel shows the linear regression slope indicator directly followed by the R-squared indicator in the middle panel.
Graphic provided by: MetaStock.
 
GE is in a long-term bear market trend. The current rally off the early October low price is corrective, with price now having reversed downward. The reason GE is on my radar is that I am now waiting for the R-squared indicator to move above its critical level to give the all-clear signal that the new short-term downtrend will most likely continue. As long as the R-squared indicator remains below its critical level, there is a high probability that the trend could reverse back up. However, once the R-squared indicator moves above its critical level, the risk of a reversal back upward is greatly reduced but not eliminated. There is always some risk in analyzing the markets and nothing is guaranteed.



Alan R. Northam

Alan Northam lives in the Dallas, Texas area and as an electronic engineer gave him an analytical mind from which he has developed a thorough knowledge of stock market technical analysis. His abilities to analyze the future direction of the stock market has allowed him to successfully trade of his own portfolio over the last 30 years. Mr. Northam is now retired and trading the stock market full time. You can reach him at inquiry@tradersclassroom.com or by visiting his website at http://www.tradersclassroom.com. You can also follow him on Twitter @TradersClassrm.

Garland, Tx
Website: www.tradersclassroom.com
E-mail address: inquiry@tradersclassroom.com

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