We’ve got a short signal for this morning’s open from the Number of Stocks above the 5 Day Moving Average indicator. The system sold-short the SPY at the open.
A couple of days ago I mentioned that short-term breadth needed to improve before longer-term breadth could improve. This makes intuitive sense. Indeed, that is what we saw on Thursday with the 5DMA indicator (red line, top pane) improving and the 52 Week New High New Low showing similar improvement. The 5DMA indicator is now at a level that usually sees some mean-reversion, thus the short signal.
However, a good measure of longer-term breadth, the Number of Stocks in an Uptrend (top pane, gray histogram) barely budged. This measure must begin to show some strength if these rallys are going last for any length of time. Until we see growth in the number of stocks in an uptrend, it will be hard not to see every rally as a chance to sell.
Caution is still in order with longer-term breadth being weak and SPY trading beneath the 200 day moving average.
Breadth Report Tracker
Below is the spreadsheet containing all trades since the inception of the Breadth Report. Overall, I am pleased with performance thus far. The system gives clear buy and sell signals using only market breadth, and for almost 3 months of in-sample trading, appears to be achieving the results expected from historical backtesting of these indicators.
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.
Wood shedder,
That’s a real neat system and have enjoyed your articles on it.
From back testing do you see one signal better than the others as far as % win rate, versus draw down?
Soclair, thanks. I don’ t have enough real time info to answer that yet, but historical backtests might help determine it. So far, I’ve only published one of the backtests. You can view it here:
http://ibankcoin.com/woodshedderblog/2010/05/09/backtest-report-raw-advancers-and-decliners-indicator/
I’m making a mental note to publish the reports for the other indicators soon.