[RUTrading]

Strengthening breadth

Usual caveats apply, my calculations, so there may be errors.

I calculate breadth based on stocks held in my database and I do this for various sectors and indices.  I then produce a table as an overview which gives me a summary score of breadth based on how various breadth parameters are behaving.  For example, whether the advance / decline line is above its moving averages.  I do this on a number of time periods.  For the last few weeks the overall score has been pretty dire.  However, over the last two days things have become more positive.  Of course with the rally of the past week that can be expected and that does mean we might be in a bull trap.  I thought I'd share.

Breadth overall scores from yesterday's data:



Breadth overall scores a week previous:


The NASDAQ100 was one of the earlier movers.  'Buy' is just an indication to myself.  A guide not a command.  So that does not mean 'buy' to you, it is just an indication that breadth seems stronger.  My scorings are based on very short, short, medium and long term indications against the various breadth curves and the overal score is a consensus score I came up with.  These are based on breadth improving to some extent more than abosolute values.  'Buy' means than in general breadth is improving in all time frames.  The detail is rather complex and a little ad-hoc.  But the main takeaway is that breadth this week has improved.

The NASDAQ100 was the earliest mover.

Hi pcabc, Thanks for sharing this, looks very interesting your market gauge. Have you tested what happens during 2008 and did your gauges warn you to get out before this drop this year? 

I have been busy creating one for the South African market (JSE) but still not completey done.

[pcabc]

Hi pcabc, Thanks for sharing this, looks very interesting your market gauge. Have you tested what happens during 2008 and did your gauges warn you to get out before this drop this year? 

I have been busy creating one for the South African market (JSE) but still not completey done.

Thank you.  A word of warning though, I've been producing interesting looking tools but I'm finding it harder to make money.  I have some successful periods and other periods where things grind down - so the usefulness is an interesting question. 

Rather than plot a snapshot on one date I have plotted, based on NYSE breadth data, the S&P500 for a five year period running up to the 2008 crash, see below.   However, really you don't need the breadth indicators to see that the S&P500 has entered stage 4 just before the beginning of 2008.  The 150 day SMA is sloping down, it has lower highs and lower lows. 

My aggregate indicator whipsaws you out in mid 2006.  However, it is then generally positive up until mid 2007.  It flashes posative for, say, a month to six weeks in autumn 2017 before some sell and danger signals and apart from a few positive flickers as the S&P500 pulls up toward the 150 day MA it is in sell / danger right until the crash and beyond for some way. 

The advance decline line had started downward  mid 2017 and the advancing / declining volume lagged behind it somewhat but did similar.    Weinstein's momentum was sloping down at the same time and crossed zero at the beginning of 2018.  The percentage of stocks above the 200 day EMA seemed to start a slow decline from spring 2017.  There is a little danger with this indication as this particular line will be from a very limited set of data.

The key point from this is that there was a long slow market stage 4 well before the late 2008 crash.

   

[RUTrading]

Pcabc, thanks for sharing the 2008 charts, looks very interesting, love the work you doing on this. This is what Stan was talking about taking different indicators and putting them together to create the Weight of the Evidence.

I understand when you say making money from it is harder. It is always easier to look at these indicators once the events have accured and then know when to have exited or entered.

It will be interesting to see when it tells you to get back in the market. Eventually we going to have to follow these beautifully gauges blinding to make the money we hope to make. The key probably is narrow the focus on what works for us and then to trust it.

[pcabc]

Pcabc, thanks for sharing the 2008 charts, looks very interesting, love the work you doing on this. This is what Stan was talking about taking different indicators and putting them together to create the Weight of the Evidence.

I understand when you say making money from it is harder. It is always easier to look at these indicators once the events have accured and then know when to have exited or entered.

It will be interesting to see when it tells you to get back in the market. Eventually we going to have to follow these beautifully gauges blinding to make the money we hope to make. The key probably is narrow the focus on what works for us and then to trust it.

My overall scores are starting to look better right now.  But if you look at previous events bounces in a bear market have increasing breadth.  An interesting example is the dotcom bubble:
1. During the stage 4 the advance / decline line was rising.
2. Weinstein's momentum was rising for much of 2000 - 2001 and was above zero for 2001 and the first half of 2002.
3.  The percentage of stocks above the 50% EMA was above 50% for much of the time (bullish).
4. Same can be said of the percentage of stocks above the 200 day EMA.
5. My overall score system is showing 'buy' despite being in a stage 4 in the market.
6. Lower highs in the index.

So unfortunately there is no magic bullet.
   

(Note, I have no new highs or new lows data for this period.)

[RUTrading]

Pcabc, thanks for sharing the 2008 charts, looks very interesting, love the work you doing on this. This is what Stan was talking about taking different indicators and putting them together to create the Weight of the Evidence.

I understand when you say making money from it is harder. It is always easier to look at these indicators once the events have accured and then know when to have exited or entered.

It will be interesting to see when it tells you to get back in the market. Eventually we going to have to follow these beautifully gauges blinding to make the money we hope to make. The key probably is narrow the focus on what works for us and then to trust it.

My overall scores are starting to look better right now.  But if you look at previous events bounces in a bear market have increasing breadth.  An interesting example is the dotcom bubble:
1. During the stage 4 the advance / decline line was rising.
2. Weinstein's momentum was rising for much of 2000 - 2001 and was above zero for 2001 and the first half of 2002.
3.  The percentage of stocks above the 50% EMA was above 50% for much of the time (bullish).
4. Same can be said of the percentage of stocks above the 200 day EMA.
5. My overall score system is showing 'buy' despite being in a stage 4 in the market.
6. Lower highs in the index.

So unfortunately there is no magic bullet.


(Note, I have no new highs or new lows data for this period.)

Are you certain your data is that of those stocks in the S&P500 at that period back in 2000 -2001? 

Another thing to maybe play around with is RelativeStrength of Value vs Growth or Growth vs Bonds or MidCap vs LargeCap and see if that can bring down that BUY score during those times. 

The challenge is we can tailor make our scores to fit 2001, 2008 & 2020 and then not be fool proof for the next down turn. Anyway its all part of finding something that works the majority of the time, so it is working alot better in 2020 and thats important.

[pcabc]

Are you certain your data is that of those stocks in the S&P500 at that period back in 2000 -2001?

The breadth data, except for the percent above the 50 and 200 day EMAs is for the NYSE.  For the percent plots it is based on on a few stocks within my database that I have price data for in that time-frame.  So some care is needed but I suspect those couple of plots are not far off what they would be.

Another thing to maybe play around with is RelativeStrength of Value vs Growth or Growth vs Bonds or MidCap vs LargeCap and see if that can bring down that BUY score during those times.

Sorry, I don't follow what you mean with respect to 'RelativeStrength of Value vs Growth' or 'Growth vs Bonds'.  The data is largely based on the NYSE and comprises of several of the breadth measures in the book and a few others I have added over time.

The simplest way to remove a lot of those buy indications was to remove buy signals made when the index price is below a falling 150 day moving average.  Basically do not buy in stage 4.  It is an interesting point as so far I have deliberately based the signal on the breath signals excluding the index behavior.  Given the index price action is so clear I did not think it necessary.  I'll have to ponder that one.

The challenge is we can tailor make our scores to fit 2001, 2008 & 2020 and then not be fool proof for the next down turn. Anyway its all part of finding something that works the majority of the time, so it is working alot better in 2020 and thats important.

Exactly.  A month or so before the down turn I found downward cross in moving averages (edit) of the advance / decline line, that occurred before the 1987 crash.  But this time that indication was much too slow.  One needs to be careful.

[isatrader]

[RUTrading]

Sorry, I don't follow what you mean with respect to 'RelativeStrength of Value vs Growth' or 'Growth vs Bonds'.  The data is largely based on the NYSE and comprises of several of the breadth measures in the book and a few others I have added over time.

The simplest way to remove a lot of those buy indications was to remove buy signals made when the index price is below a falling 150 day moving average.  Basically do not buy in stage 4.  It is an interesting point as so far I have deliberately based the signal on the breath signals excluding the index behavior.  Given the index price action is so clear I did not think it necessary.  I'll have to ponder that one.

So when I was talking about relative strength it really is comparing difference indices within the NYSE. I personally only follow my local market so can’t point you to real examples of the NYSE and maybe it does not work as I have not tested it. So you can try testing many verities like Mid Cap vs Small Cap, or Small Cap vs Large Cap or Large Cap vs Bonds or Growth vs Value or Stocks vs Gold.

Attached is an example of Small Cap vs Large Cap and you can see how it avoid 2008 and been out for the past 3 years while our market has gone sideways.

During bull markets one will be much stronger. You then have that as one of your many BUY signals to add in your Market Gauge to create your Weight of Evidence and when it is not the stronger one it is a Sell or Neutral signal. Just something you might want to explore.