### Commodity Channel Index (CCI)

#### Overview

Developed by Donald Lambert, Commodity Channel Index (CCI) measures the variation of a security's price from its statistical mean. High values show that prices are unusually high as compared to the average prices; whereas low values show that prices are unusually low as compared to the average prices.

Contrary to its name, CCI can be used effectively on any type of security; not just commodities (Achiles 1995).

#### How it is calculated

The assumption behind the indicator is that securities move in cycles, with highs and lows coming at periodic intervals. Lambert recommended using 1/3 of a complete cycle (low to low or high to high) as a time frame for the CCI that is if the cycle runs 60 days (a low about every 60 days), then a 20-day CCI would be recommended.

A 20-day CCI is calculated with the following basic steps:

#### How to interpret

##### Extreme Readings

CCI typically oscillates between 100. Readings above +100 implies an overbought condition (and a pending price correction) while readings below -100 implies an oversold condition (and a pending rally) (Achiles 1995).

##### Crossing Centerline

CCI gives a buy signal when it moves through its oversold level on its way back to zero. Sell signals are generated when it re-crosses its way back to zero (Pring 1993).

##### Divergence Analysis

A bearish divergence occurs when prices are making new highs while CCI fails to surpass its previous highs. On the other hand, a bullish divergence occurs when prices are making new lower lows while CCI is making higher lows.

##### Example

Meiban Group displayed a bullish divergence on June 2005. While price was making a lower low, CCI made a higher low. Prices moved up following this divergence as well as CCI. Notice that when CCI's reading was above +100 (overbought condition), Meiban Group displayed price weaknesses. On the other hand, when CCI's reading was below -100 (oversold condition), price strengthen.

#### Rules available in ChartNexus

##### CCI lies above/below +100/-100

- CCI lies below -100
- CCI lies above +100

##### Parameters available:

**Period**- the number of days used in the calculation of CCI**x**- the minimum amount CCI has to lie above +100 or below -100**t**- the maximum number of days for CCI to rise**x**above +100 or fall**x**below -100

##### CCI Centerline Crossover

- CCI crosses over centerline
- CCI crosses below centerline

##### Parameters available:

**Period**- the number of days used in the calculation of CCI**x**- the minimum amount CCI has to move above or below the centerline after a bullish or bearish crossover respectively**t**- the maximum number of days for CCI to rise**x**above or below the centerline after the bullish or bearish crossover respectively

##### CCI rebounding/retreating in the regions below/above -100/+100

- CCI rebounds from low in region below -100
- CCI retreats from high in region above +100

##### Parameters available:

**Period**- the number of days used in the calculation of CCI**x**- the amount that CCI has to rebound/retreat from its low/high in the regions below/above -100/+100**t**- the maximum number of days for CCI for**x**to develop

##### CCI Rebounded/Retreated Regions below/above -100/+100 And Touching/Crossing -100/+100

- CCI crosses back -100 from low in the region below -100
- CCI crosses back +100 from high in the region above +100

##### Parameters available:

**Period**- the number of days used in the calculation of CCI**x**- the minimum amount between the low and the -100 level or between the high and the +100 level**t**- the maximum number of days for**x**to develop

#### Buy signal

- Reading below -100
- Positive divergence below -100 based on a move back above -100
- Crossing up from the centerline

#### Sell signal

- Reading above +100
- Negative divergence above +100 based on a move back below +100
- Crossing down from the centerline

#### References :

- Achelis, S. B., Technical Analysis from A to Z, 1995
- Pring, M. J., Technical Analysis Explained, 2002