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STATISTICS


Exxon Mobil Starts Downtrend

06/03/11 08:29:27 AM
by Alan R. Northam

Statistical analysis is used to show that Exxon Mobil has started a new downtrend. We are 95% confident that this downtrend will continue over the intermediate term.

Security:   XOM
Position:   N/A

On April 26, I wrote an article entitled "Exxon Mobil Topping?" There I showed that Exxon Mobil (XOM) had completed its upward rally and had entered into a trading range. The conclusions pointed out that XOM had not made a new higher high in the last two months and a breakout one way or the other from the trading range would determine the future direction for XOM. The direction of the breakout from the trading range proved to be downward, confirming that XOM was in fact in a topping process. This current article uses statistical analysis to show the current trend of XOM.

In the bottom panel of Figure 1 is shown the daily bar chart of Exxon Mobil. The bar chart also shows the 50-day linear regression trendline (middle red line) and its upper and lower 2 sigma channel lines. Note that the linear regression trendline and the channel lines are sloping downward, showing that the intermediate-term trend of XOM is down.

FIGURE 1: XOM, DAILY. This chart shows the daily price chart of XOM in the bottom panel along with the 50-day intermediate-term linear regression trendline and its upper and lower channel lines, the linear regression slope indicator in the top panel, the R-squared indicator in the second panel, and the relative standard error Index (RSEI) in the third.
Graphic provided by: MetaStock.
 
The top panel of Figure 1 shows the linear regression slope indicator. This indicator shows that on May 23, XOM crossed below its zero line to start the downtrend and the beginning of the downward acceleration stage in price. Since then, this indicator has continued to move steadily lower, indicating that price acceleration in the downward direction continues to increase.

The next panel of Figure 1 shows the R-squared Indicator. This indicator crossed above its critical level at 0.08 three days ago on May 27, signaling that the newly established intermediate-term downtrend of XOM had finally become significant. "Significant" in statistical terms suggests that there is now a 95% confidence level that a strong downtrend is in place.

The third panel from the top of Figure 1 shows that relative standard error index. Standard error is a statistical measure of volatility. Changes in the prevailing trend are usually centered around periods of high volatility. In contrast, periods of strong trends are usually centered around low volatility. Note that the relative standard error index (RSEI) is now below 0.5, indicating that volatility is now below average. This is an indication that the newly established significant trend is starting to settle down into its downward direction and is leaving behind the period of volatility surrounding its reversal from an uptrend to a downtrend.

In conclusion, Exxon Mobil has now reversed its direction from up to down over the intermediate term. As long as the linear regression slope indicator continues to move lower, price will continue to accelerate in the downward direction. As long as the R-squared indicator continues to move upward, the strength of the downtrend will continue to get stronger. And as long as the relative standard error index continues to move lower, the downtrend of XOM should continue to move downward as well. As long as these three indicators continue to develop as stated, we can feel confident that the price of XOM will continue to move lower.



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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