Thursday, May 20, 2010

HV Mesa/Plateau

I wanted to share something I'm currently reading about in case you hadn't already learned about it. It's called a HV Mesa or Plateau. Since HV uses the last 30 day of actual movement, if you had a one day spike for some reason it will cause a huge movement in the HV chart, 30 days later when that event falls of the calculation for HV, the HV line drops just as proportionately. After reading about this I decided to look up ITMN as I know they had a few recent big one day moves. You can see the first mesa with the rise in stock price from their leaked information on drug trials, then it falls off 30 days later. Then you see the spike from the second announcement where they didn't pass the drug trials. Sometime in the next few weeks we'll see that HV line fall back as this event works its way out of the last 30 days in the calculation. I just thought it was good to understand what's driving the HV line sometimes before we go making any decisions on a potential play.

You can do a few things to try and get a better sense of the real HV disregarding the one day move. You can either take out that move with simple math, as in the picture below maybe you say that HV was running at about 60% and then after the one day big move it was steady again, so it's true HV disregarding an outlying event is still roughly 60%. Another thing you can do is play with shorter or long time period HVs which will either take out the recent event or smooth it out over time if using a longer-term time frame. Anyway, just wanted to share as obviously looking at this chart you would assume that with a 400% current HV that the stock is moving wildly every day, when in fact it's had two big moves and then relatively small intraday movement other than those two big moves.

No comments:

Post a Comment