SUM - Summerset Group

[Hoop]

RSI = 100 - 100 / (1 + Average Gain / Average Loss)

If you look at the chart, there have been basically no "average gains" during the last 14 day period - i.e. average gain is very close to Zero, which turns RSI to 100 - 100 / (1 + 0 / something) = 100 - 100 = Zero;

How are your providers calculating RSI?

BlackPeter....Even IC charts using crappy Yahoo data shows the RSI around 35.5

I'm looking at ANZ securities supercharts now and I see the RSI oscillator is far too volatile to be the standard RSI (Wilder) type..Wilder designed RSI to smooth out the often false over-reaction of oscillating signals. I've checked the Momentum oscillator which is a more volatile form of oscillator but it doesn't match up either..so I have no idea what type of oscillator the ANZ securities is using...

Personally I don't use ANZ securities supercharts as it's too limiting, the Adjusted tick box doesn't seem to work at all for me since NZX data went to S&P..I have told them about their supercharts being too basic to be of much use..but they don't seem to treat charts seriously..brokers and squiggly lines don't mix well...eh

BlackPeter ..your equation has not factored in the exponential moving averages of the up closing prices with the exponential moving averages of the down closing prices ...using those smoothing factors makes it nearly impossible to get down to a zero result..Ive seen a few 5's over the decade but that is unusual, normally a low RSI gets to about 20 ..when it does get to say 5 its a result of a sharp price drop losing about 30% within an continuous falling price trend period (without a sucker rally) ... As an example IQE at the end of Nov 2015 with a sharp fall from $1.30 to $0.40 resulting in a RSI falling to 9.5... this RSI was flattering (high) because the fall came after a sucker rally...The latest IQE disaster saw the RSI reach 13.5...

Many investors misuse oscillators of which RSI is one..Just thinking and interpreting overbought oversold could land one into mistiming a trade..
When interpreting and using RSI TA investors have to first determine which RSI interpretation method to use...by asking these 2 questions...
1...is SUM in a trend and how strong is the trend?
or
2...is SUM showing a ranging behaviour?,,(trendless)

Answer:..Currently SUM is trending so use the trending interpretation method as outlined below from IC

.................................................. .................................................. .................................................. .................................................. .........................
From Incredible Chart education webpage

Trending Markets

Only take signals in the direction of the trend.

• Go long, in an up-trend, when RSI falls below 40 and rises back above it.
• Go short, in a down-trend, when RSI rises above 60 and falls back below it.

Exit using a trend indicator.
Take profits on divergences. Unless confirmed by a trend indicator, Relative Strength Index divergences are not strong enough signals to trade in a trending market.
.................................................. .................................................. .................................................. .................................................. ........................

RSI is useful in Stocks that are behaving in a rectangle pattern (trading range/range bound/trendless) Most indicators become unreliable during trendless periods and could send false signals..Oscillators (RSI is an Oscillator) are more reliable indicators during trendless periods and these should be used in charting at these times..

During trending times (SUM is trending) there are other indicators better suited to use than RSI

SUM has been and still is a great buy and hold stock thanks to its long term bull cycle status...It has and is a must have stock in one's portfolio...If investors just forgot about getting into "cheap" market unfriendly stocks and blaming everyone except themselves when those stocks misbehave and instead invested long term on the steady friendly risers they would be so much better off....Hint: invest in stocks that have long term charts with the price starting at the bottom left hand corner and ending at the top right hand corner.....simple!!! .......see my today's SUM Chart post here

[Zouga]

Great post, thanks Hoop

[BlackPeter]

BlackPeter....Even IC charts using crappy Yahoo data shows the RSI around 35.5

I'm looking at ANZ securities supercharts now and I see the RSI oscillator is far too volatile to be the standard RSI (Wilder) type..Wilder designed RSI to smooth out the often false over-reaction of oscillating signals. I've checked the Momentum oscillator which is a more volatile form of oscillator but it doesn't match up either..so I have no idea what type of oscillator the ANZ securities is using...

Personally I don't use ANZ securities supercharts as it's too limiting, the Adjusted tick box doesn't seem to work at all for me since NZX data went to S&P..I have told them about their supercharts being too basic to be of much use..but they don't seem to treat charts seriously..brokers and squiggly lines don't mix well...eh

BlackPeter ..your equation has not factored in the exponential moving averages of the up closing prices with the exponential moving averages of the down closing prices ...using those smoothing factors makes it nearly impossible to get down to a zero result..Ive seen a few 5's over the decade but that is unusual, normally a low RSI gets to about 20 ..when it does get to say 5 its a result of a sharp price drop losing about 30% within an continuous falling price trend period (without a sucker rally) ... As an example IQE at the end of Nov 2015 with a sharp fall from $1.30 to $0.40 resulting in a RSI falling to 9.5... this RSI was flattering (high) because the fall came after a sucker rally...The latest IQE disaster saw the RSI reach 13.5...

Many investors misuse oscillators of which RSI is one..Just thinking and interpreting overbought oversold could land one into mistiming a trade..
When interpreting and using RSI TA investors have to first determine which RSI interpretation method to use...by asking these 2 questions...
1...is SUM in a trend and how strong is the trend?
or
2...is SUM showing a ranging behaviour?,,(trendless)

Answer:..Currently SUM is trending so use the trending interpretation method as outlined below from IC

.................................................. .................................................. .................................................. .................................................. .........................
From Incredible Chart education webpage

Trending Markets

Only take signals in the direction of the trend.

• Go long, in an up-trend, when RSI falls below 40 and rises back above it.
• Go short, in a down-trend, when RSI rises above 60 and falls back below it.

Exit using a trend indicator.
Take profits on divergences. Unless confirmed by a trend indicator, Relative Strength Index divergences are not strong enough signals to trade in a trending market.
.................................................. .................................................. .................................................. .................................................. ........................

RSI is useful in Stocks that are behaving in a rectangle pattern (trading range/range bound/trendless) Most indicators become unreliable during trendless periods and could send false signals..Oscillators (RSI is an Oscillator) are more reliable indicators during trendless periods and these should be used in charting at these times..

During trending times (SUM is trending) there are other indicators better suited to use than RSI

SUM has been and still is a great buy and hold stock thanks to its long term bull cycle status...It has and is a must have stock in one's portfolio...If investors just forgot about getting into "cheap" market unfriendly stocks and blaming everyone except themselves when those stocks misbehave and instead invested long term on the steady friendly risers they would be so much better off....Hint: invest in stocks that have long term charts with the price starting at the bottom left hand corner and ending at the top right hand corner.....simple!!! .......see my today's SUM Chart post here

Hi Hoop, Thanks for taking the time to write this post ... very educational. Good on you to point out as well the context in which the RSI should be used (up/down-trend vs channel); I am in no doubt that you are the expert in TA ... I just happen to use some basic TA to time my buying and selling decisions, which are based on FA - and it looks like, some of these decisions even might be based on "wrong" indicator / oscillator values (though they still often seem to work). However - I don't think that the RSI as provided by ANZ is "wrong", it is just calculated based on a different formula (see below).

The good news is - despite the fact that I seem to use a "different" RSI ... we both seem to agree in our assessment of SUM - i.e. no newbies hurt. Market seems to agree a well ... SP went up since my first post about RSI indicating oversold (not that I think my post did that ...).

Re the different values for RSI ... I might have discovered the solution. The formula I put into my previous post is the original formula (according to Wilder) - and I think this is what ANZSecurities are using. Definition as well here: http://www.investopedia.com/terms/r/rsi.asp

However - other data provider seem to use a "smoothed" RS (check as well here: http://cns.bu.edu/~gsc/CN710/fincast...x%20(RSI).htm) - which is basically using 13/14th of the previous RS and 1/14th of the new RS to calculate the next value. This method gives the RSI a "memory" longer than 14 days .... however - it makes it as well dependent on the date on which the calculation of the index started (i.e. different data sources are likely to use (slightly) different values for e.g. RSI 14, and they might all be correct, if they started the index on a different day in the past.. Over time however these values will merge into each other.

Calculation
RSI=(100-(100/(1+RS)), Average Gain=(Total Gains/n), Average Loss=(Total Losses/n), First RS=(Average Gain/Average Loss), Smoothed RS=(((previous Average Gain X 13 + Current Gain)/14)/(previous Average Loss X 13 + Current Loss)/14)), n=number of RSI periods

In summary - I don't think that the ANZ RSI is "wrong", it is just different. They are not "smoothing" the index. A discussion whether it is "correct" to use their RSI or somebody else's "smoothened" RSI 14 is probably as sensible as a generic discussion whether the MA 50 or the MA 200 are the more correct MA to make buying / selling decisions. As always ... I think the correct answer is "it depends".

PS: No exponents or logarithms hurt by the calculation of the RSI ... well not in any of the formulas I have seen

[winner69]

Hi Hoop, Thanks for taking the time to write this post ... very educational. Good on you to point out as well the context in which the RSI should be used (up/down-trend vs channel); I am in no doubt that you are the expert in TA ... I just happen to use some basic TA to time my buying and selling decisions, which are based on FA - and it looks like, some of these decisions even might be based on "wrong" indicator / oscillator values (though they still often seem to work). However - I don't think that the RSI as provided by ANZ is "wrong", it is just calculated based on a different formula (see below).

The good news is - despite the fact that I seem to use a "different" RSI ... we both seem to agree in our assessment of SUM - i.e. no newbies hurt. Market seems to agree a well ... SP went up since my first post about RSI indicating oversold (not that I think my post did that ...).

Re the different values for RSI ... I might have discovered the solution. The formula I put into my previous post is the original formula (according to Wilder) - and I think this is what ANZSecurities are using. Definition as well here: http://www.investopedia.com/terms/r/rsi.asp

However - other data provider seem to use a "smoothed" RS (check as well here: http://cns.bu.edu/~gsc/CN710/fincast...x%20(RSI).htm) - which is basically using 13/14th of the previous RS and 1/14th of the new RS to calculate the next value. This method gives the RSI a "memory" longer than 14 days .... however - it makes it as well dependent on the date on which the calculation of the index started (i.e. different data sources are likely to use (slightly) different values for e.g. RSI 14, and they might all be correct, if they started the index on a different day in the past.. Over time however these values will merge into each other.



In summary - I don't think that the ANZ RSI is "wrong", it is just different. They are not "smoothing" the index. A discussion whether it is "correct" to use their RSI or somebody else's "smoothened" RSI 14 is probably as sensible as a generic discussion whether the MA 50 or the MA 200 are the more correct MA to make buying / selling decisions. As always ... I think the correct answer is "it depends".

PS: No exponents or logarithms hurt by the calculation of the RSI ... well not in any of the formulas I have seen

Whatever way it's done the 6 cent gain on Friday has seen the RSI head north again

[Hoop]

"..........................In summary - I don't think that the ANZ RSI is "wrong", it is just different. They are not "smoothing" the index. A discussion whether it is "correct" to use their RSI or somebody else's "smoothened" RSI 14 is probably as sensible as a generic discussion whether the MA 50 or the MA 200 are the more correct MA to make buying / selling decisions. As always ... I think the correct answer is "it depends".............................."

Yep BP you summed it up pretty well...
and as Winner said whatever RSI is used its heading up again..
6c rise = investors back in accumulating
Friday gains have triggered short term buy signals by bouncing off the MA50... Some investors more happy with risk use slow stochastics and that would got them excited and buy in on the ground floor (5.20)...

[Zouga]

Yes I did see that hoop and took the plunge to top up.

[winner69]

Goodness gracious me - 196 sales in Q3

Summerset CEO Julian Cook said total sales for the quarter were the highest ever achieved across the group.

At this rate 700 sales for year on cards

Maybe real profits - real profits $120m maybe a bit on light side

[winner69]

Market hasn't liked these record sales

They say the market per se is the best judge of value - so bet it SUM worth just over $5 bucks and quite a lot less than a few weeks ago.

Never mind - still reckon $6 by Xmas on back of $120m real profits.

[Grunter]

I don't think the decrease in share price is firm specific.

I think it's more in the environment of expectations for interest rates to increase (Fed reserve indicates December), and if anything the expectation of a housing market slow down as a result to a more sedate long term growth rate?

Ryman and Metlife are also exhibiting similar price decreases, hence the reasoning that it is not firm-specific.

[Zaphod]

I'm not overly concerned. SUM is in my LT portfolio so I'm no considering selling at this point. Given the fundamentals, once the SP weakness subsides I'll be back buying again.