Monday: How Strong Was Today’s Selloff?
Simply looking at the market and going, “Gee, today looked pretty bad” is not a good way to truly assess the strength or intensity of a particular move.  It’s like looking at a patient and quessing their height, weight, temperature, blood pressure, and cholesterol level based on your opinion of their phsycial appearance at the time.  It’s not enough.  You need more insight to make a diagnosis, so you run some tests.
Many people follow breadth indicators such as bullish percent indexes, TICKS, TRINS, Advance/Decline lines, et al, but I decided that wasn’t enough so I made my own.  Infinity hours and many modifications later, and I have my Daily Buy/Sell Strength charts that I frequently put up.
Here are today’s annotated charts.
Close up view:
Longer term view:
Danny, is the sell strength indicator used above one of your own or is there a way we can replicate it ourselves?
Thanks and good work.
Very educational.
Thanks, Danny.
Veddy interesting.
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Flam – it is my own. I do try and post it every day though.
Anton / Jake – thanks, and you’re welcome
Hey Danny:
I’m still trying to get a “gut” feeling for the buy/sell metric from the NL days (without you giving away some important proprietary details). Does the magnitude of the red downward bars relate in some way to volume or magnitude of the decline/advance? There are recent pullbacks like the May 26ish area that show red price candles but not downward bars.
Also, the bottom long term chart oscillator (magenta/blue) seems to suggest that the sell pressure is decreasing from Oct 08 to present, mainly because the end point is above the zero line. Is that a correct interpretation? If so, then, we should watch the end points if they dip below the zero line?
Thanks D…
Good qs MS.
I do my best to explain things, but agree it is not all intuitive.
LEAST intuitive is that the price bars are painted from criteria that have literally nothing to do with the buy/sell indicator. Those are based solely on price action, not even volume, over a few lookback periods. Hint: they involve the min-low lows and not-shown max-high lines.
I know that’s sort of retarded from a reader-understandability perspective, but I do it so I can see the most info on the chart, cleanly.
So basically, you want to see a change. Green goes to white, then white to red. So the first red bar, you’d look for follow though to the downside from there, other conditions permitting. Same thing on the upside.
The best trades off this come from the “first” change. We’ve been largely green for a while, and today we’re white, so even if we bust back into green, it’s not the “first” green (more like the fourth) so I would be less excited. The first red, though, could be a compelling short. And likewise, the first green after that red will probably be a compelling long.
question 2: The blue/mag line is a MA of the Monthly spread reading, so it lags the actual month-over-month buying spread. It does oscillate around the zero line. You got this, just reiterating.
since oct, the blue/mag line peaked above zero once briefly in Jan. and now has been above since mid-april. There is a positive divergence in the sell offs since oct in the line, but that is bc oct was so anomalous, it through all readings out of whack, so I dont put any stock in that divergence.
The way I interpret this is more off of the spread, with the line (obviously) dictating the general trend of the spread (higher/lower).
So I don’t care where the line is, just what direction its trending. The Spreads, that’s where I care if that actual number is positive or negative.
that make sense?
any other questions (MS or others) feel free to ask.
I also care about the actual height of the spread bars. See how big the spread bars are after the march low (on green side)
At the time I fully biffed this, trying to fade the spike up, but now with hindsight, we know that was the real deal, and accordingly the readings were huge. 8 times out of 10 though I’d fade the extreme readings, especially if they happened at the same time as, say, my VIXer indicator was spiking out.
If I could deliver a movie starring XLF in a story that revolves around a Volatility Squeeze with uncut scenes of graphic chart porn — already shot and in the can — would THAT be something you’d be interested in?
http://www.stockmarketmentor.com/public/1875.cfm
Isn’t the new Entourage supposed to be on already?
next week right?
btw, I fully, fully, agree with ol Dan’s take on the XLF fwiw
Danny,
cool stuff. I miss those newsletters, but am glad to see whatever you post.
Today is an important day.
Cant wait to see how its going to play out.
indeud, danny. i think the rational trade has finally overtaken the momentum trade.
perhaps it has. rational trading is soooooooooooo Feb 09 tho.
lol