Of course after the two day rout we’ve witnessed, a bounce should not be surprising. It is comforting to see evidence for it in the short-term breadth indicators.
Two of my favorite breadth indicators are above.
The red line is the number of stocks trading above their 5 day moving averages. As of Tuesday’s close, that number was 281. Typically, less than 600 is bullish.
The green line is a Decliners indicator. This indicator looks back one year and ranks today’s number of declining stocks against previous days. A reading above 80 is good, but today’s reading of almost 93 is even better.
I added the blue lines to illustrate what has happened recently when the indicators are in sync. They do perform well in high-volatility environments.
I find that almost every recent post has had to have a news caveat due to the European debt shenanigans, and this post will not be any different. While the technicals are set for a bounce, the market has been terribly news driven, and any big news may overwhelm the technicals.
Personally I wouldn’t be betting on a bounce of any kind. I may be expecting one, but Im sure a lot of people expected a pull back in that last rally we saw only to be kicked in the face.
Yes, the market has been going on extended runs over the past couple of months. Still, we shouldn’t ignore that the conditions are ripe for a bounce.
I’m betting 30k on a 2x etf (QLD) of a bounce. I bought the last 10 minutes of the trading day.
Wish me luck? 😛
Looks like luck was on your side!
It is 9 out of 10 days. ^_^
Oh btw!
Thanks for your good readings of the market. I’ve only been following this site for about two weeks, but so far you’ve given me insight into areas I’m not looking at which helps me with a more well rounded overall outlook.
How I look at the market is day to day in the here and now. The farthest I look back is yesterday due to my statistical analysis and algorithms I’ve written.
What I do works quite well, but looking at the more long range like the X-moving week average, or whatever, that you post help aid in outsmarting the majority; thinking where they will draw their lines, and then comparing it to my calculations. Like for example, yesterday I calculated a low of 1215, but I know people freak out at 1220, so I chose a middle ground (1218) which worked out quite well.
The simple stuff works. You just have to be disciplined when using it. Don’t over-think it. Support and resistance is a good example. It works, but it is so simple that most believe it can’t. Glad you are enjoying the blog!
Nice .. Thanks!
This is not useful. It works until in one swift you get taken out to the woodshedder. For example, your latest indicator read oversold and due to a bounce in early August but going long at time time would have killed you. If you held-on to your positions you broke even last Friday – just long enough to see your positions go flat and the red again. Funny why you didnt mention this part…
Maybe it works best when the market is under the 200d MA?
John, no indicator works 100% of the time. This one works ~70% of the time. I have written about these many, many times, and have never ignored anything about its performance. Check the archives.
This pullback was long overdue…we went from ‘Thunderdome’ to ‘wait, everything is great again’ in less than a month. There aren’t many 10+% months on record to the best of my knowledge. I have been sitting in cash for an ‘easier’ entry point, and this may just be the opportunity I’ve been waiting for.
I love this kind of objective analysis, thanks.
Hi. i was looking at the same thing as another contributor on whether the combo of these 2 indicators works historically. It may work with price only under the 200DMA. i guess the way to review is for a scan on the charts going back a longer timeframe. Either in Stockcharts or Tradestation, how can I get these indicators on the charts? Are they custom indicators?
Vimal, yes, they are custom. I have backtested them before and written about the backtests. Check the archive —-> category —-> Market Breadth and you’ll probably find the backtests.