When we look at technical indicators, the ( ) is at 50.1024. I personally use anything above 75 as overbought and anything under 25 as oversold. Currently the is neutral having been moving down with the stock. The positive indicator ( VI ) is at 0.9986 and the negative is at 0.9208. The positive and negative levels have been moving in a manner consistent with downward movement for the stock. The oscillator K value is 69.1107 and D value is 82.6903. This is a cyclical oscillator that is highly accurate and can be used to identify overbought/oversold levels as well as pending reversals and short-term activity. I personally use anything above 80 as overbought and below 20 as oversold. When the K value is higher than the D value, the stock is trending up. When the D value is higher that the K value the stock is trending down. The is beginning its downward movement from overbought levels.
I have created an algorithm (called the SAG gauge) which signals when stocks are truly overbought and oversold. The algorithm indicates when a particular stock meets multiple criteria which culminates in an oversold or overbought alert. That signal occurred June 21 when DOW was truly overbought.
Upon back-testing this indicator, it has signaled overbought status 99 times dating back to 1972. Eighty percent of the time the stock drops at least 2.5% over the following 35 trading days after the indicator date. Seventy percent of the time, the stock drops 3.5% and fifty percent of the time drops 5.75%.
Since 2011, this stock always drops a minimum of 3.93% when the , positive and negative VI are simultaneously at their current level and moving in their current direction. This additional study requires the at the bottom of the chart above to be overbought as it is today too. Eight similar instances were found going back to 2011. The minimum days of movement and percentage dropped are outlined in the chart above with a yellow (9 days, 3.93%). The median movement and percentage are represented by the light blue (23.5 days, 8.95%).
One of the occasions above, the SAG gauge fired the overbought signal two days prior to the , VI , and lining up. This identical scenario is possibly playing out again. I do not fully trust one data point, but I will not ignore it either. On this occasion, the stock dropped 17.76% over the following 13 trading days.
The final level studied which is most strongly dictating my conservatively placed projection is a . According to Investopedia, "Fibonacci retracement is created by taking two extreme points on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%." The level from the bottom to the top of the most recent movement falls within all of the potential movement windows. If the stock were to give back 100% of its most recent movement (May 18 low of 59.29 to June 19 high of 65.47) the stock would drop to 59.29. 61.8% of this movement would have the stock drop to 61.65 which is where my projection lies.
Considering the , VI , levels, SAG gauge and historical similarities favors a move to the downside. Based on historical movement compared to current levels and the SAG gauge, the stock could drop at least 2.87% over the next 35 trading days if not sooner.
-Elliott Wave Ideas (elliottwaveideas.com)