The Commodity Channel Index (CCI) is originally designed to identify cyclical patterns in commodities [20]. The under- lying assumption behind the index is that commodities (stocks, bond) have high and low values at periodic cycles, and it tries to estimate when an asset is oversold or overbought. The CCI boundaries are often considered between -100 and +100 (or sometimes between -200 and +200 ). When the CCI is above +100 , the asset is considered to be overbought. Similarly, if the CCI falls below -.100 , the asset is considered to be oversold. CCI is computed by using an asset’s typical price ( TP ), which is the average of its high, low and closing prices on a day. Then, the moving average of the typical price for N periods is computed ( MATP ). Next, the mean deviation MD is computed by taking the average difference between typical prices in the N -day period and the last period’s smoothed typical price, i.e. moving average of the typical price. The CCI is then defined as
CCI = ( TP -MATP ): ( c x MD )
where the constant c is usually chosen to be 0 : 015 . The market classification rules with the CCI are as follows.
1. I F CCI increases to above 100 THEN BULLISH
2. I F CCI decreases to below 100 THEN BEARISH .
3. I F CCI increases to above -100 THEN BULLISH .
4. I F CCI decreases to below -100 THEN BEARISH . .
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