TLS - A case example in Stochastic Oscillator and Momentum(ROC)

Previously we looked at TLS when the Rate of Change (ROC) is crossing into negative territory indicating the possible start of a downtrend.
http://ozstock.blogspot.com/2008/05/tls-rate-of-change.html

Today we look at a new analysis where TLS has indeed fallen. The new graph below shows the price has drop since around the last analysis on 28 May. The new graph has a Momentum (this is actually the Rate of Change indicator) with a longer period of 12 days and only crosses the negative region after 3 June and has trended down since. So the shorter ROC predicted this trend earlier but the longer ROC gives confirmation later.



Another interesting indicator is the Stochastic ocsillator (SO) which has confirmed the trend. In general when the SO oscillator is above 75% it indicates an overbought position. It signals a time to sell when it crosses the 75% line downwards. Conversely, if it is below 25%, it is oversold. When it crosses above the 25% line in the upwards direction, then it is a signal to buy.

In the case of TLS, it crossed the 75% line and moved downwards, thus indicating time to start selling - which confirms the ROC analysis. Recently, the SO has fallen below 25% and headed upwards again. However, it quickly went down the 25% line again. Using the ROC/Momentum indicator, it gave a strong signal that the 25% break-out was not a strong trend since the ROC is still well in negative territory.

At the latest point, the momentum is still quite negative. This indicates it is not time to start buying TLS yet. For those in short already, this may be a good time to start offloading. When ROC starts approaching the 0% line from the bottom and ROC starts crossing teh 25%, then it will be time to buy again.

Technical Note:
ROC = (Current Price - Price N days ago)
...... ----------------------------- x 100%
Price N days ago

In some literature, Momentum is similar to above but without the division and percentage.

TLS - Rate of Change

A request was received to look at TLS with the Rate of Change method. The result is shown in the graph below of the Rate of Change (7 days) with the Last Price of Telstra on a daily basis up to today (28/05/08).

The number of days for ROC was chosen such that looking on past events, it seemed to be a reliable indicator. Looking at the current trend, the ROC reached 0% and is on the way down. If the ROC becomes negative and remain so, then there would be a sustained drop in the share price.

This may be the time to risk opening a short as the position would be favourable if the ROC becomes negative. Those with short open, should be waiting positively in anticipation of further drop.