
MarketTrak Question/Comment Message 
Posted By: Jim S. Date: Mon Jul 16, 2012 
Title: 5day model slope 
Message: 
Response: The sign of the forward slope indicates the direction of the DJIA over the next five trading days. A rising DJIA would have positive slope and this is predicted by a positive ANO value. A declining DJIA would have negative slope and this is predicted by a negative ANO value. The actual slope is computed from a leastsquares analysis of six days of closing values. Day 0 is the latest known closing value (today's close). Days 15 are closing values in the future. We don't know these five values yet but we will after the close on day 5. Once we are able to compute the actual slope we can compare it with what was forecasted back on day 0 to see if the sign was predicted correctly. The slope signal is strongest when the absolute value of its ANO is 1.0. The Summary also shows the recent trend of this ANO value with an up or down arrow. The 5day forecast along with the 1day forecast are updated daily. Now let’s look at the slope example below. The DJIA values are shown as red squares and the computed leastsquares straight line is blue. The leastsquares line is one that is drawn so that the sum of the squared distances from each DJIA point to the line is a minimum value. Any other line drawn would have a larger sum. In this example, you can see that the line is rising so the slope is positive. The numerical value of the slope is +32.09. Our model is correct if we forecasted a positive ANO value after the close on day 0. You probably noticed that the DJIA is falling on days 4 and 5, even with a positive slope. We would hope that our 1day model would correctly indicate a cash or short signal after the close of day 3. We might also find the trend of the 5day model ANO to be falling (a down arrow following the 5day value ANO would be shown in the Summary) on day 0. Forecast Model Update:
We now include forecast results for 5, 10 and 15 days forward. The model
is identical for all three, except that the slope is computed for the
number of days indicated. 