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Demand
Index
Description
The
Demand Index, developed by James Sibbet, combines
price and volume in such a way that it is often a
leading indicator of price change.
The Demand Index calculations are too
complex, however, for this text.
The calculations require 21-column
accounting paper to calculate manually.
MetaStock
Pro uses a slight variation on the Sibbet's
original Index so that the Index is displayed on a
"normal" y-axis scale.
The author's Index is plotted on a scale
labeled +0 at the top, 1 in the middle, and -0 at
the bottom. MetaStock
Pro uses a scale from +100 to -100.
Other than the difference in y-axis
labeling, the indicator is calculated exactly as
designed by its author.
Interpretation
There
are six "rules" to the Demand Index:
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A
divergence between the Demand Index and the
price trend suggests an approaching weakness
in price.
-
One
more rally to new highs usually follows an
extreme peak in the Demand Index (the Index is
performing as a leading indicator).
-
Higher
prices with a lower Demand Index peak usually
coincides with an important top (the Index is
performing as a coincidental indicator).
-
The
Demand Index penetrates the level of zero
indicating a change in trend (the Index is
performing as a lagging indicator).
-
When
the Demand Index stays near the level of zero
for any period of time, a weak price movement
that will not last long is indicated.
-
A
large long-term divergence between prices and
the Demand Index indicates a major top or
bottom.
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