The Commodex logic is generally well known, simple, and accepted. There are four basic assumptions behind the series of Commodex formulas:

    • ¬†Price Up, Volume Up, Open Interest Up – Continued uptrend based upon new “accumulation” of long open interest. Buyers continue to be willing to buy on ever increasing prices. The investing public has confidence prices will continue higher. Sellers will only sell if bid higher prices.
    • Price Up, Volume Down, Open Interest Down – Possible dip or reversal of downtrend based upon “distribution” of long open interest. Here, fewer buyers are willing to buy on climbing prices; they are losing faith that higher levels will be achieved. Buyers are taking profits. The market is losing momentum.
    • Price Down, Volume Up, Open Interest Up – Continued downtrend based upon accumulation of short open interest. Sellers continue to sell despite lower prices. Buyers will only buy if offered decreasing prices.
    • Price Down, Volume Down, Open Interest Down – Possible rally or reversal of downtrend based upon distribution of short open interest. Sellers are no longer willing to sell even though prices are falling. They are losing interest in the short side. Momentum is decreasing as indicated by falling volume and lower open interest.

Commodex uniquely reduces these theories into precise mathematical comparisons.

Price relative to a short term historical perspective;

Price relative to a long term historical perspective;

Change in price relative to changing volume;

Change in price relative to changing open interest.

The maximum index values are +10 for strong long side accumulation and -10 for strong short side accumulation. The scale is as follows:

-10 -8 -6 -4 -2 0 +2 +4 +6 +8 +10

This is known as the Commodex Daily Index because it measures market action for each day.

In addition to the Daily Index, Commodex computes an “on-balance” composite of “dailies” called the Trend Index. The Trend Index measures accumulations and distributions of Daily Index numbers over a statistically significant period. The maximum Trend Index values are -100 for strongly oversold and +100 for highly overbought.

The Trend Index operates as both an oscillator and an overbought/oversold indicator. When the Trend Index changes speed, it indicates a change in market momentum. A change in direction indicates a change in trend.

Very high or very low Trend Index values take place after long periods of buying or selling. Under such conditions, markets become top-heavy or bottom-heavy. This is particularly true as contracts approach expiration. The “liquidation window” closes as time to expiration decreases.

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