SlopeCharts Now Has OBV!

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I’m seriously losing track of how many features we’re adding. I think this is the seventh one in two days. Anyway, as the title suggests SlopeCharts, my pride and joy, now has On Balance Volume.

The On Balance Volume (OBV) indicator is a relatively simple SlopeCharts indicator that combines volume and price to help determine change of trend. The OBV line chart doesn’t have its own price scale. Instead, you simply need to observe the pattern of the line and how it relates to the price chart as a whole.

As strong volume accompanies rising prices, the OBV will surge higher. However, as strong volume occupies drooping prices, the OBV will push lower. The higher the volume, the more “weight” the up or down movement in price will have. The lower the volume, the less the OBV will move based on the present direction.

The general idea, then, is that volume powers prices higher or lower, and that by combining these values into a chart that takes into account both vectors, you get a more accurate view as to the true direction of a financial instrument. Specifically, if you find divergences taking place, it could indicate a subtle but important trend change.

Let’s take Bank of America as an example, back in 2011. The stock had been falling from April 2010 to December 2011, losing nearly three-quarters of its value. As the chart shows below, the price bars were continuing to weaken (lower lows) yet the OBV, represented in the lower pane, was doing just the opposite: making lower highs. This was an important signal that selling was taking place on diminishing volume, whereas buying was on growing volume.

positivediv

The arrow below marks about the point where this divergence took place and the subsequent nearly 300% rise in price.

msftrise

As a different example, here is Microsoft from 1999. The stock had been strong for years. However, while the price trend was clearly up, the trend in the OBV was down. This divergence spanned many months and suggested waning power behind the stock’s strength.

bacdivergence

After one final surge higher in the first quarter of 2000, Microsoft spent the next couple of years falling to pieces. OBV provided a clear warning that a major trend change was on the way.

bacfall

OK, now a change of subject that couldn’t be bigger. and I’ve toyed with the idea of making this a post of its own, but I think I’ll just bury it here as a side note.

On Thursday afternoon, my son wanted to take his OneWheel downtown, so I said OK, I’ll tag along on my little scooter. (This is one of those things you ride with one foot and push with the other foot and, yes, I look ridiculous; but it’s for the family, OK?)

Anyway, we had a grand old time and ran a few errands. We were done, so we started heading home. We were both on the sidewalk, and I noticed in front of me was a striking blonde with her young son, probably about four years old. I slowed down so as to move into the street and get around them, but as the woman was tussling the boy’s hair, I heard a laugh that confirmed my suspicion: that was Marissa Mayer in front of me.

So as I carefully made an arc around the two of them, my son behind me, I have to confess I felt really bad. I mean, here was this mom who was picking her son up from school. She has hundreds of millions of dollars – – one of the richest women in the world – – and she has made a point of giving her family a fairly normal life. Here she was, just walking her son from school, smiling with him, chatting with him. There were no bodyguards. No vehicle with security nearby. It was just mother and son. And, I’ve got to tell you, I felt like a total dickweed.

Because there have been times I’ve written unkind things about her. Nothing vicious, but still – – unkind. And she’s done nothing to deserve it.

So maybe God works in mysterious ways. I had done my post on Defilements, headed to downtown Palo Alto, and in no time at all was confronted with my own deep shame. And I decided at that moment: no more. You won’t be reading any posts or tweets from me talking trash about Marissa anymore. It was wrong of me, I feel bad, and it stops now.

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