Breadth stagnated while price staged a late-day comeback.
Summary:
Not much changed with breadth on Monday. The indicator showing the greatest change over Friday’s readings was the measure of Raw Advancers and Decliners.
I extended the graph out to cover an entire year. The graph shows that even when breadth is stagnating with not much expansion the markets have managed to stage impressive rallies. This, in my opinion, speaks to the mean reverting environment that has characterized the last 10 years of trading.
As long as we stay above the 200 day average, we should be looking long, although I am still advocating some caution as we have watched a failed retest of the 50 day average.
As of Monday morning, the system is 75% long.
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.
Awesome, thanks.
If today holds gains, it looks like more winning trades for the breadth report!
Hey Woodshedder, I’ve been thinking of the problem of stops for a couple of days, and I had a question I believe you’re best positioned to answer. What sort of leeway exists for algorithms in trading. I’m only familiar with a few broker platforms. Are there any that let you better specify how you want your trades to be handled?
Specificially, I was thinking an algorithm that partitioned your position into equal sized batches, and then proceeded to sell them off in tight iterations, after evaluating the spot price and volume before each sale, cancelling if a series of extremes or out of the ordinary conditions were to occur, would be well positioned to take advantage of stop-loss trading, without subjecting the portfolio to the more extreme disadvantages that can crop up.
The obvious downfall I can see, from the part of a broker willing to permit you this privilege, would be a probable increase in trading expenses. If each iteration were treated as an individual sale, any large brokerage would tear you apart on comissions alone. Odd lots would probably be out as well. Do you know any brokers that could make it cheap enough to be feasible?
Who’s breadth would win in a fight, yours or Danny’s?
Tough call… they are both exhibiting bad breadth these days.
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highly political question there, and since I want to answer you honestly but politically, all I can tell you is where I’d put my money.