With half the year almost over, there are many different opinions about how the stock market might finish the year. One thing that both retail and professional investors and traders can agree on is that the choppy market has made it difficult to make money.
Many of the top hedge funds saw double-digit losses in the first quarter and the preliminary data on the 2nd quarter does not look much better. Of course, many were heavily invested in what is referred to as momentum stocks and suffered as a result.
One of the many fine technical tools that Welles Wilder developed can be quite useful in non-trending markets. This is the Average Directional Index (ADX), which can be used by itself or along with the Minus Directional Indicator (-DI) and Plus Directional Indicator (+DI).
They are all included in one of the classic technical analysis books, New Concepts in Technical Trading Systems, by Welles Wilder. Though I do not feature it in my daily columns, I have used the ADX since the mid-1980’s. I have found it to be quite useful as part of the stock selection process as well as in managing stops.
This weekly chart of the Spyder Trust (SPY) includes the 14-period ADX along with a 21-week WMA. Below this, I have also included my standard OBV along with its WMA. Many analysts use an ADX reading of either under 20 or under 25 to identify non-trending markets.
Source: Markets
