A quick glance tonight at the charts leads me to believe there is more downside, but one of my favorite indicators is signaling a quick bounce may be had.
Click on the chart to enlarge.
The above indicator is based upon the number of declining stocks. It is bounded, meaning that it measures the current number of decliners against previous numbers of decliners and ranks the current reading from 0 to 100. Tonight’s reading of 93.25 is high.
Using SPY, if we buy the next open after a reading of 90, and sell at the close when the close is higher than the previous close, the indicator has been correct 64.19% of the time. Each trade lasts about 2 days. The sample size is 472 trades. The green arrows in the chart above shows the buys while the red arrows show the sells.
The setup does not typically generate large percentage gains, but as a mechanism for timing the market, it does have an edge. Therefore a quick bounce tomorrow or even Friday should not be surprising.
that’s pretty interesting stuff, Wood. Very reversion to mean – thanks!
Thanks. It appears to have nailed this bounce.
whats that indicator called? thanks
I call it the Decliners indicator. It just takes the number of stocks that have declined and compares that number to previous numbers of decliners, then ranks the result. You could also use just a raw number of stocks that have declined with a bollinger band to give the signal. I have used that as well and it works.