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This Week's Lesson: Monday, February 08, 2016
A Treasure Trove of Technical Tools

While fundamentalists delve into economic and financial data to analyze the market, technicians employ indicators, so Tom Aspray details how he uses a combination of them in his daily analysis.

The starc bands are a technical tool that I use frequently. They help me determine whether a market is in a high risk buy area (overbought) or a low risk buy area (oversold). It is important to understand that just because a market is at its starc+ band, the market can still go higher but the probabilities do not favor it.

The regular formula, developed by the late Manning Stoller, adds or subtracts two times the average true range (ATR) from a six-period moving average. In his experience, a market should stay within these bands approximately 92% of the time. If instead you use three times the ATR, then prices should stay within the bands 99% of the time.

These bands are valuable on any stock, ETF, or market average but there is another tool that I use to help me determine when the overall market is overbought or oversold. This is the number of stocks in an average that are above their 50-day moving average. Of course, you can also look at this number relative to a 10- or a 200-day moving average.

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