Time to Buy Nigeria?

Hi Dave,

Did NGE just capitulate? For some reason I want to buy Nigeria, am I out of my mind?

Thanks.

Patrick M. – Kalispell Montana

Patrick,

I had not expected a question on Nigeria. Sadly, I know very little from a fundamental standpoint. But I would say that from a technical/DeMark standpoint, prices may well have bottomed out.

On a weekly chart there is a DeMark BUY signal so it might be worth a look.

Time to Buy Nigeria?

Not familiar with using the TD Sequential Indicator?

No worries.

A colleague of mine, Tom Thornton, wrote a great summary piece on using and interpreting the TD Sequential. His comments are below.

Follow Tom on Twitter @TommyThornton

DeMark Sequential – Hedge Fund Telemetry Quick Primer

Many have asked for a DeMark Primer on Tom DeMark’s most referenced indicator the Sequential or “Those Green 9’s and Red 13’s”.  Sequential is one of 60+ indicators Tom DeMark developed starting in the late 70’s astoundingly before computer technology on paper by hand. Tom has told stories of the fire department coming to his house to clean out the stacks of papers in his garage as a fire hazard!   Below is a short guide with the basics of Tom DeMark’s Sequential.

There are rules beyond what I go into below but my goal is to give you the basic understanding how the Setup (Green 9’s) and Countdowns (Red 13’s) are constructed.  On future notes, I’ll get into some of the ways I’ve used effectively the indicators as well the screening of downside and upside exhaustion signals.

The DeMark Indicators are designed to assist the user with buying into weakness and selling into strength to anticipate trend exhaustion.  Selling into a rally and buying into a decline often afford on the opportunity to exit a trade without too serious a loss if wrong.  This is the overall psychology of DeMark Indicators.
Tom DeMark

I am exceptionally grateful to Tom DeMark and his entire team for the past nearly 20 years incorporating his indicators into my process as well as the friendship along the way. Some of the comments are attributed to Tom’s books (on Amazon), the private chat room on Bloomberg (which I highly recommend) and Jason Perl’s fine book.  DeMark indicators can be accessed by Bloomberg, CQG as well Market Studies Inc.

These are complex dynamic indicators that take time to learn but there is a reason people like Steve Cohen, Paul Tudor Jones and John Burbank use them everyday within their process – they work!  FYI I suggest opening this on your desktop as large as possible in order to see the annotations on the charts.  Don’t bother pinching your iPhone screen.

Sequential – The Setup and Coundown

Starbucks is a good example of several Setup green 9’s constructed by 9 consecutive price bars higher/lower that 4 previous bars closing price.  There are also two Countdowns of red 13’s which are constructed of closes higher/lower that 2 previous bars closing price. 

These do not have to go in consecutive order.  The red 13’s tend to signal more significant trend exhaustion although the green Setup 9’s can as well but typically are shorter term.  
Time to Buy Nigeria?

Time and Risk Level

When a Sequential Red 13 is present on a chart, there are two components of Sequential  that help determine the potential of this exhaustion zone.

Time – (rule of thumb) Once a Countdown 13 has occurred, the chart has 12 price bars within which it should respond.  If the chart has not done so in that time the 13 is unlikely to have the desired response, and the prior trend is likely to resume.

Risk Level – When a Countdown series is completed a Risk Level (magenta dashed line projected above/below a 13) is generated, identifying the zone within which there should be a a reversal , as well as the amount of residual momentum the trend could experience and yet still preserve the buy or sell indication.  (The largest bar in the Countdown is added to the high of the 13th bar)  This can also be used as a stop.
A “Price Flip” is defined by a contra-trend move identified by a close that is higher than the close four prior bars earlier, in a recent downtrend…or close lower than  a close , followed by a close greater than the close four price bars earlier in the opposite direction (effectively the beginning of a Setup in the other direction, but not necessarily completed Setup)
Amgen example shows a good example a completed upside Countdown Red 13 Sequential and a price flip down starting a new Setup down.
Time to Buy Nigeria?

The 13 vs 8 deferral rule is designed to ensure that the tail end of the Sequential series is representative of the existing trend.   The 13th bar has to be over the 8th bar’s close.  A “+” is inserted when the 13 would have qualified with perimeters (being 2 bars higher/lower than 2 previous closes) if it was over the 8th bar.

Wrap Up

Cancellation of a Countdown can occur several ways. First, when there is an existing Countdown (lets say on bar 6 of 13) and a Setup 9 is completed in the opposite direction of the Countdown.  Often times I’ve seen it happen when there is a Deferred 12+ and an opposite trend starts.

Second, if the market trades higher/lower and posts a true low/high above/below the true high/low of the prior TD Buy Setup (TDST line).  This is for cancellation of a Buy Countdown/Sell Countdown.

So there’s a very short introduction into the DeMark Sequential. I’ll be posting this on my website for reference once it launches.   For much more detailed analysis and explanation, pick up one of Tom DeMark’s books.

A big thanks to Tom for that excellent DeMark primer.

Have a question for me? Just ask.

Comments
  • Dave Floyd
    Reply

    If you are a MotiveWave user and would like the DeMark add on for your charts, shoot me an email to fxticker@aspentrading.com and I will send you over an invoice via PayPal ($95).

    Please put DeMark in the subject line.

    Dave

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