Two short-term breadth indicators are suggesting that a bounce has just begun and it may have some room left to run.
As the chart below shows, these indicators work better when the market is consolidating or trading in a range and volatility is ticking up.
The red line is a measure of the number of stocks trading above their 5 day moving averages. This indicator has just turned up, but it can move to the top of its range very quickly, over the course of a day or two.
The green line is a measure of the number of declining stocks. Anything above 80 is a good buy signal.
As of Friday’s close, both indicators were giving decent buy signals. The recent pullback has paused and the market appears to have found some support, and neither indicator is suggesting that the bounce is complete.
Hey Wood,
Off topic here, but I have some questions regarding your research in sector rotational systems. I’ve realized I need to change the direction my trading/investing is going in. I need to stop discretionary trading my retirement account and also need to shift at least part of my active account to a more system based approach. Sector rotation and systems based on broad market correlations seem to be a logical starting point. Seeing as you are the go to guy here regarding system trading, I was wondering if you could recommend some resources that would provide a logical starting point. I’ve gotten a lot out of what you post here and plan on digesting a lot more of it. I’ve also read most of MarketSci when I toyed with this idea in the past. Other than that I’m pretty green regarding this side of the market.
Thanks
Also on the same lines for beginners, it would be great to see a post on how you implement a ranking system for those of us who aren’t so technically inclined in that area. Many of your rotational systems use some sort of ranking system, but I’m not really sure on how to implement it. How do you normally do it? Do you use excel with some VBA and a data feed?
Keep up the good work.