Apple Daily --- 1 Oct, 2000

Many investors downplayed the significance of the opening price. They just pay attention to the closing price or the day high/low. However, sometimes the opening price is very important. Sometimes just knowing where the price opens already enables one to tell where the market is heading for the rest of the day.

As we have said before, the Active Range is the value range of the market. It represents the price interval in which the aggregate market participants have agreed to trade, under the current economic and political conditions.

When the market closes below the Active Range, it signifies that the bears have won the battle. Other things being equal, the market should open below the Active Range the next day. However, if surprisingly the market opens above the Active Range instead, something must have happened. Some of the fundamentals may have changed and the public may not know them yet.

Figure 1 shows the Prosticks chart of Hang Seng Index. Notice that bar A gapped down and closed near day low. Furthermore, it closed below the Modal Point and Active Range, a sign of extreme bearishness. Under this gloomy situation, the market should open below the Active Range the next day. Unexpectedly, the market opened just above the Active Range the next day. If you look at the previous ten days or so before A, the market never opened above the Active Range if the previous day was a falling bar. Thus, the fact that B opened above the Active Range portended that something was going on. Desperate buying forces had emerged. As can be seen, bar B ended up rallying more than 800 points that day. Notice that the Active Range of bar B is concentrated on the upper half of the bar, indicating that price rallied very quickly to high prices and consolidated there.

Take a note at the Modal Count of B. Notice that though B is a long bearish bar, the Modal Count is quite large, larger than that of the nearby bars as well as the 150-day average. That means both buying and selling forces battled fiercely at the Modal Point. Although in the end the selling force won, the high Modal Count signified that buying forces had started to enter the deeply oversold market.

There are some more interesting points about the Hang Seng Index chart. Notice that the three Modal Points of the circled bars occured at the same price, with their highs being suppressed by the Modal Point of D. The Modal Point of each E and F are matched by some previous Modal Points. Also, bar A forms a gap with both B and C, forming a pattern resembling the star?pattern in Candlesticks. However, if you look at the Candlesticks chart (not shown here), A, B, and C do not form a star pattern.

Last time we discussed about a new type of indicator called P-RSI which has the same formula as the RSI, but uses the Modal Point instead of the closing price in the calculation. In the same way, we can use the Modal Point instead of the closing price to calculate the Stochastics also. Let call the indicator P-Stochastics.

Figure 2 shows the Prosticks chart of Leading Spirit High-Tech (0606) with the P-Stochastics plotted below. As can be seen, after a prolonged downtrend, price seemed to find support at 0.12 (marked A in the figure). Notice that the low of A is exactly the same price as the Modal Point of B. Since B was a major low, naturally its Modal Point was a very strong support level. Thus, the rebound should be expected when price approached there. Notice that for bar A, the price range 0.12-0.13 is not covered by the Active Range, showing that when price falls in this range, buying forces from B flushed in and desperately pushed price upwards, with little volume changing hands.

Next, consider the P-Stochastics plot. As can be seen, the P-Stochastics exhibits a conspicuous divergence at A. Price forms a new low at A but the P-Stochastics does not. On the other hand, if you look at the traditional Stochastics plot (not shown here), no divergence can be detected.