May 14, 2007
Shenzhen Composite Index - On Balance Volume
A reader named Mike (not TraderMike) asked if I knew of anything that would indicate a top in the Chinese market (I think that was Mike’s ultimate question) and I replied that looking at market breadth statistics would be useful. I poked around on the Bloomberg and found no breadth stats for the Chinese stock market, so I decided simply to look at the On Balance Volume (which TraderMike does look at) for the Shenzhen Composite Index (45 minute and daily charts).
On Balance Volume relates volume to price change. It is calculated by adding the bar’s volume to a cumulative total when the security’s price closes up, and subtracting the bar’s volume when the security’s price closes down.
The following formula calculates the On Balance Volume indicator:
( If ( C > Ref( C, -1), 1, If ( C < Ref ( C, -1 ), -1, 0 ) ) * VOLUME ) PREV
Anyway, no surprises here, I see no “divergence” yet as volume follows price up. The thing to watch for is when price makes a higher high and the OBV doesn’t, you need to get worried. In the absence of more sophisticated breadth statistics, this is one thing we can watch.
May 14th, 2007 at 11:07 pm
since you’ve got the stuff relatively handy…
when did OBV have a divergence on the REITs (2 years ago) and nas (late 90s/00)?
tks…
May 15th, 2007 at 3:30 am
CM,
could you give us more confidence in this ‘divergence’ signal by showing an example where it worked? How about the 2001 top? Did it work then?
Inquiring minds need to know!
May 15th, 2007 at 6:34 am
bob: I’d have to go back and look; I’ll post some charts once I get a chance.
Babak: I can’t think of any times it “worked” offhand, but I’ll look at the REITs and Naz as bob suggested and see if I can see anything.
May 15th, 2007 at 8:23 am
Thanks much C.