I had some minor elective surgery last week and have spent the last four days recovering. With nothing to do except stay in bed, I had time to work on a new project. This project was to build some indicators that use only market breadth to operate- no price action– to time or make trades on one of the index ETFs, such as [[SPY]] . The overall goal was to have a measure of breadth that I could post nightly on the blog with the only requirement being that each measure had to have an edge.
Click on image to enlarge…
The top pane is course a graph of the SPY.
The second pane calculates all stocks with a 50 day average volume greater than 100K and a 50 day average liquidity of greater than $1,000,000. It lists these as the “Universe” in blue. We can see that as of Friday there were 3,228 stocks that met this basic criteria. We then use this universe to measure the stocks in a uptrend (proprietary measure, shown by the gray histogram). On the right side of that pane we see in gray that there are 1,592 stocks in an uptrend. The second measure (the red line) calculates the number of stocks above their 5 day simple moving average. We can see that there are currently 2,102 stocks (out of our universe) that are trading above their 5 day simple moving averages.
I put the vertical line in to show how all the measures lined up to have you buy the bottom on 2/5/2010.
The other 3 panes need explanation as well, and a more detailed explanation will be forthcoming. Briefly, the 3 lower panes measure
- The cumulative Advance/Decline line of all stocks in the universe as described above
- A raw measure of advancers and decliners, with Bollinger Bands built from the decliners data.
- A measure of new highs and new lows with a 9 day simple moving average.
In the future I will cover what the specific buy/sell signals are for each of the measures, and with that we’ll look at how they performed under backtesting.
Currently, all the measures of breadth are saying that the market is overbought.
Back to bed…
I like this project. Hope you feel better.
Thanks for working on and sharing this– best wishes for a speedy recovery.
Thanks folks!
Did the Dr. accidentally transplant some of Danny’s Breadth Algorithms into your brain by accident? 🙂 Hope you feel better.l
lol…well, I know how Danny calculates his measures and mine are not the same.
My goal was to have something actionable, something that gives a clear buy/sell signal. We can all follow along and see if it works.
I hear you. I love breadth indicators for bottoms. I’ve never been able to get then to work on tops. That’s why I really enjoy Danny’s work. Now I’ve got two. What could be better?
Yes I agree…very useful at finding tops.
Be well, Wood.
Thanks! I should return to work tomorrow…I’m ready to resume my routine.
Nice work, Woodshedder, I’m eager to see the rest of it. Hope you feel better and remember, keep ice on your testicles!
Excited to see more – hope you feel better soon!
Glad you got it removed, but I didn’t think the hump was that noticeable. Good to hear all’s well then.
Better his hump than his ability TO hump, I always say.
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