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This is another method I have been working on to measure inter market
dynamics and estimate expected price ranges among a group of leading
stocks. Again I am using the OEX as an example. The first chart
(20daydist) is a plot of the distribution of the daily changes in the OEX
(and the top weighted stocks) that could be expected based on the daily
changes of each in the last twenty days. The ranges fall mostly in the
plus or minus 2% - 3% area (this is the change that you could expect
about 68% of the time). There is an outside possibility that you could
see moves as much as minus 8% to the downside and 10% to the upside. This
is where you would want to have to your disaster insurance. The 20 day
chart would be useful to someone with a longer term perspective. The
second chart (5daydist) is a plot of the distribution of the daily
changes in the OEX (and the top weighted stocks) that could be expected
based on the daily changes of each in the last five days. This shows a
dramatically different picture. The ranges fall mostly in the plus or
minus 4% - 5% area (a much larger range then the 20day expected range).
There is an outside possibility that you could see moves as much as minus
10-11% to the downside and 7-8% to the upside over the next few days
(possibly big swings in both directions). So while this may not tell
which way the market will go,(although in the case of the five day chart
the bias is to the downside) it is useful in making trading decisions
based on probable ranges for price changes. This was calculated in Excel
with an Add-In called Sim25 (for performing MonteCarlo simulations)
Ron McEwan
Attachment Converted: "c:\eudora\attach\20daydist.gif"
Attachment Converted: "c:\eudora\attach\5daydist.gif"
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