21 MAC/21 MARC

The 21 MAC & 21 MARC (Part I)

One of the premier ways to utilize the 21 MARC & 21 MAC together is to look for times when an abrupt transition is most likely.  How is that accomplished?  Simple… by looking at what transpired 21 days or weeks or months ago…

Let’s assume that the action for the next 3 days is going to be sideways (as the majority of market movement is; the convincing trends only consume a minority of time; see 90/10 Rule of Cycles).  One might assume, then, that the direction of the daily 21 MAC will also be sideways.  In most situations, that would be incorrect.

That is due to how an average is calculated.  Each time a new data point is added – in this case, a new day – an old data point is removed.  In this case, that means the high & low from 21 days ago is removed from the calculation of the daily 21 High & 21 Low MAC.

If the high & low of 21 days ago were significantly lower than the high & low of today (and each of the next 3 days, in this example), then the corresponding daily 21 High & 21 Low MAC would increase.  The old (lower/lesser) data point is removed and the current (higher/greater) data point is added in.

If that occurs for the next 3 days, the daily 21 High & 21 Low MAC would continue to increase (ascend) even though the actual price action of these 3 days was sideways.  The market action is giving the average a chance to catch up.  There are multiple ways to utilize this knowledge in day-to-day market action & analysis…

1 – One of those is to be able to anticipate when daily 21 High & 21 Low MACs are about to move significantly higher or lower EVEN IF CURRENT PRICE ACTION IS SIDEWAYS.  Depending on the proximity – of the daily 21 High & 21 Low MAC to current price action – that could have diverse effects.

For instance, if a market has undergone a sharp advance and then consolidates, it will often wait until the daily 21 High MAC approaches the current lows before resuming that uptrend.

In that case, price action is preventing a break into the channel (created by the daily 21 High & 21 Low MAC).  It has waited for the channel to (almost) catch up from below – or for the daily 21 High MAC to touch the current daily low(s) – but then catapults to the next plateau before a daily close can enter the channel (by occurring at or below the daily 21 High MAC).

For those struggling with this concept, let’s take a real-life scenario (for some)… in a slightly different realm.  Let’s say you were hit hard, financially speaking, with the 2008/2009 economic downturn (or any other financial challenge).  Let’s imagine you lost your job and quickly fell behind on your mortgage, car payment and other credit obligations…

In this hypothetical scenario, the first ‘black mark’ on your credit history occurred in January 2009, when you missed your car payment.  In Feb. ’09, two payments were missed (retail credit cards).  In March ’09, you tried to catch up on those payments but missed your mortgage… knowing that you had a little leeway before serious penalties would ever kick in.

In April ’09, things got worse and you missed multiple obligations.  The same thing happened in May, June & July 2009.

Fortunately, in June 2009 you found a new job and began to bring in new income.  It may not have been higher than your previous income, but it was certainly more than no income at all.

By August & Sept. 2009, in this fictitious illustration, your situation leveled out and you began to make critical payments… but still delayed others.  In Oct. – Dec. ’09, you caught up with remaining payments even as you were scrimping to come up with any additional funds for various unforeseen expenses.  2010 saw your situation stabilize, but your credit history and credit score had taken an enormous hit throughout 2009.

For the sake of argument, let’s say these credit ‘black marks’ remain on your record for 3 years (36 months) from the time they appeared**.  It is only in the 37^th month, after a specific missed payment, that those black marks begin to come off your record… and your credit score begins to move higher as a result.  Take note of that last sentence…

[**Credit delinquencies usually impact a credit score longer than 3 years.  This is just hypothetical for the point of this illustration.]

If everything else remained the status quo – meaning you made all current payments and missed no others – your credit score would begin to move higher 37 months AFTER a black mark went on to your record.

So, life goes on and your new job remains stable and you even get a raise.  You are really wanting to upgrade your car, but already found out that your credit score was too low to qualify for any decent credit (since the black marks are still on your credit report)… without having to pay astronomical interest rates and sign away your first born as collateral.

You patiently wait.  BUT, you know – or at least you should soon figure out – that beginning in February 2012, your credit score will begin to bump up… as the glitch of Jan. 2009 (37 months earlier) comes off your credit history.  In March & April 2012, more black marks are removed and your credit score bumps up a bit more.

If you are the least bit savvy, you have already figured out that May – August 2012 will be the best months for your credit score (if nothing else changes).

Is that because you will suddenly receive an influx of money and be showered with new credit offers?  NO!

It is because the black marks of April – July 2009 will progressively disappear during that period… 37 months after they were created.

So, just like anticipating when a 21 MAC is about to move significantly higher (barring a sharp drop in CURRENT prices) – due to the fact that much lower data points (from 21 days or weeks or months ago) are about to be removed from the MAC calculation – you are able to identify when your credit score is about to move significantly higher (barring a new round of missed payments) – due to the fact that damaging data points (from 36 months ago) are about to be removed from the credit score calculation.