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STATISTICS


Exxon Begins Long-Term Downward Trend

12/05/14 05:03:56 PM
by Alan R. Northam

Long-term statistical analysis shows Exxon Mobil starting a new long-term downward trend.

Security:   XOM
Position:   N/A

Figure 1 shows the 200-day linear regression slope indicator in the upper panel, the R-squared indicator in the middle two panels, and the daily price bars of Exxon Mobil (XOM) in the bottom panel. The bottom panel also shows the 200-day linear regression trend line (blue upward sloping line) along with the upper 1 sigma channel line (red dotted line), the upper 2 sigma channel line (solid red line), the upper 3 sigma channel line (dashed red line), the lower 1 sigma channel line (green dotted line), the lower 2 sigma channel line (solid green line), and the lower 3 sigma channel line (dashed green line). The red channel lines represent resistance lines and the green channel lines represent support.

Figure 1. XOM, DAILY. This chart shows the daily price chart of the Exxon Mobil (XOM), in the lower panel along with its 200-day linear regression trend line and its associate channel lines. The top panel shows the linear regression slope indicator. The middle two panels show the R-squared indicator in two differing vertical scales for clarity.
Graphic provided by: MetaStock.
 
The linear regression slope indicator in the top panel of Figure 1 shows the slope of the linear regression trend line. The higher it moves above the zero line, the steeper the upward slope of the linear regression trend line. Once the linear regression trend line peaks, as it did in June 2014, and starts to move in a downward direction the slope of the linear regression trend line starts to become shallower. I call this the deceleration period. The latest period of deceleration ran from July 2014 through November 2014. Deceleration normally occurs near the end of a trend. Notice that this line has now dipped below its zero line indicating that the slope of the linear regression trend line is now sloping downward indicating a reversal in the long-term trend from up to down.

The R-squared indicator in the middle panel of Figure 1 shows when price is in a statistically significant trend. By statistically significant, it is meant there is statistically a 95% confidence level that the trend will continue. When the R-squared indicator moves above its critical level, price enters a statistically significant trend. Note the critical level changes with the length of the trend. For long trends the critical level is near zero. However, as the length of the trend shortens, the critical level moves higher. For a 200-day linear regression trend line the critical level is 0.02. Notice the critical level reading of 0.044 indicates a statistically significant downward trend. This reading is difficult to make because of the scaling of the graph. However, when the graph scale is changed it becomes easier to see that the R-squared indicator has moved above its critical level. For this reason I have added a second R-squared indicator graph to Figure 1.

The chart in the bottom panel of Figure 1 shows price moving between the +1 and -1 sigma channel lines from September 2013 until July 2014. This period of time represents a healthy upward rally. However, from August 2014 onward, price started to move away from the -1 sigma channel line in a downward direction. In late September, price broke down below the -2 sigma channel line to warn of a possible reversal in trend ahead and, finally, on November 28, 2014 price broke down below the -3 sigma channel line to signal a reversal in trend from a long-term upward trend to a long-term downward trend. This trend reversal is also confirmed by the linear regression slope indicator moving below its zero line and the R-squared indicator moving above its critical level.

In conclusion, statistical analysis has shown the long-term trend of XOM has changed from an upward trend to a downward trend.



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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