V.10:11 (476-480): KST And Relative Strength by Martin J. Pring

KST And Relative Strength by Martin J. Pring

In previous articles, technician and author Martin Pring has analyzed the KST indicator, an oscillator designed to identify market turns based on time cycles. This month, he explains how to use the KST in gauging the relative strength of stocks.

In the September STOCKS & COMMODITIES, I introduced the KST, a momentum indicator constructed m a weighted summed rate of change. To recap, four different smoothed rates of change (ROC) are combined into one oscillator. This captures the under lying price movements of several different market cycles as reflected by the various ROC time spans. Trend reversals are signaled when the KST crosses above or below its moving average.

KST indicators can be constructed to monitor any type of market trend. By giving different weights to the different ROC components that make up the KST indicator, we can construct oscillators with different outlook lengths. One particularly practical use of the Kst indicator is to stack three printouts of the oscillator, reflecting the short-, intermediate- and long-term trend, on top of each other (Figure 1). The long-term KST monitors the primary trend of the market (that is, price movements lasting for one, two or three years); its position gives us some perspective on the trend maturity. The intermediate- and short-term indicators are used more for timing purposes. For example, if a short-term buy is triggered when the long-term indicator rises just above the zero level, a bull market rally is indicated. On the other hand, a short-term buy signal that occurs when the long-term indicator is declining tells us that a bear market rally is underway. The difference is important, since the former is usually profitable and the latter deceptive, unreliable and unprofitable.