Breadth expansion continues, with short term breadth at extremes and longer term breadth lagging.
Summary:
Despite my cautious stance, the market advanced higher with (SPY: 117.45 +1.40%) closing pennies beneath the 50 day moving average. This expansion in breadth resulted in the closing of the long trade which was initiated by the 52 Week New High New Low indicator. This was the first closed trade for this indicator since the inception of the Breadth Report. With this trade closed, the Breadth Report is now in 100% cash.
Still Cautious Here:
The Number of Stocks Trading Above Their 5 Day Moving Average indicator (red, top pane) is very extended, as is the raw advancers (third pane, green). The other two indicators are showing slight breadth expansion. Short-term breadth shows us due for some brief weakness while longer-term breadth does not seem strong enough to support much of move higher. Of course I could be wrong, and longer-term breadth could continue to expand.
[[QQQQ]] and [[DIA]] closed just above their 50 day moving averages. This is a positive development, but with the rebound happening so fast and on decreasing volume and short-term breadth extended, I’m still looking for some weakness, while it may only be brief when it comes.
How To Read the Breadth Report
Universe Screen: Applies to top three indicators. Does not apply to 52 week new highs and lows.
- The universe contains any stock trading on average more than 100,000 shares per day with a liquidity of at least $1,000,000 per day, over the last 50 days.
1. Top most indicator is the measure of stocks in an uptrend (gray histogram) and the number of stocks trading above their 5 day simple moving averages (red line).
- Buy signal is generated for the open when the SPX is above its 200dsma and the red line crosses beneath 700.
- Sell signal is generated for the close when the red line crosses above 2500, or the trade is held for 25 days.
- Short signal is generated for the open when the SPX is trading beneath its 200dsma and the red line crosses above 2500.
- Cover signal is generated for the close when the red line crosses beneath 700, or the trade is held 25 days.
- Long trade lasts on average 24 days while short sell lasts on average 10 days.
2. The 2nd indicator is the Advance-Decline line (blue line) with a 50dsma plotted (gray line). My calculation is similar but not the same as Investopedia’s.
- Buy signal is generated for the next open when the SPX is above its 200dsma and the A-D line crosses beneath the 50 day average.
- Sell signal is generated for the close when the A-D line crosses back above the 50 day average.
- The average trade lasts about 15 days.
3. The 3rd indicator is the raw advancers and decliners, with the advancers being the green line and the decliners being the red line. There are also Bollinger Bands (purple) set 1 standard deviation beyond the 20 day average of decliners.
- Buy signal is generated for the next open after the decliners exceed the upper Bollinger Band.
- Sell signal is generated for the close when the decliners close beneath the lower Bollinger Band.
- The average trade lasts 5 days.
4. The bottom indicator is the measure of 52 week new highs new lows (histogram), with a 9dsma (yellow line) plotted over top.
- Buy signal is generated for the next open after the number of new lows exceeds the number of new highs.
- Sell signal is generated for the close when the number of new highs surpass the 9dsma.
- The average trade lasts 3 days.
