The Farther We Fall, the Closer We Get to the Bottom

I checked in tonight with one of my favorite breadth indicators, which measures the % of stocks above their 20 day moving averages. This indicator excludes OTCBB stocks but includes all major exchange listed stocks, regardless of price or volume.

The indicator does a good job of identifying intermediate term bottoms.  I ran a backtest to get an idea of what Friday’s reading of 27.1 might mean going forward.

Click on the chart to enlarge it. We are focused on the green line in the bottom pane.

The Rules:

Buy $SPY at the close if

  • Yesterday the % AbvMA20 > X
  • Today the % AbvMA20 < X

$SPY is sold Y days later. All $SPY history was used. No commissions or slippage included.

The Results:

I started with X=28 since % AbvMA20 closed at 27.1. I have noted in previous posts that when this indicator gets near 20, $SPY is typically near an intermediate term bottom. These results bear this idea out.

Unfortunately, at 27.1, we may have a couple more weeks of up and down and volatility before beginning a solid uptrend. In other words, the market needs to fall farther before it nears an area on which it has typically found stronger footing.

12 Responses to “The Farther We Fall, the Closer We Get to the Bottom”

  1. You think the bottom will be around 1350 ? Thanks Woody.

  2. Nice Wood. Thanks.

    Hey, I had a question about the honey hole I never voiced last week:

    You mentioned that it’s a rare indicator, but statistical something that’s rare is prone to misreading (few observations, higher volatility).

    So, when you say it’s rare, do you mean it’s rare but well observed (lots of observations but they occur far apart and in special circumstances).

    Or do you mean rare (this has happened twice, but both times resolved this way…)?

    Thanks

  3. Murderhole Explorer

    I think the 20 day number closed close to 15 today. We either bounce or crash

  4. [...] believe we have seen the worst of the carnage, at least for the short-term. The % of stocks above their 20 day moving averages is at historically low levels, levels that almost always mean an intermediate term bottom is near. This metric closed last night [...]

  5. Woodshedder, where do you get your data from for this study?

Comments are closed.
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The Farther We Fall, the Closer We Get to the Bottom

I checked in tonight with one of my favorite breadth indicators, which measures the % of stocks above their 20 day moving averages. This indicator excludes OTCBB stocks but includes all major exchange listed stocks, regardless of price or volume.

The indicator does a good job of identifying intermediate term bottoms.  I ran a backtest to get an idea of what Friday’s reading of 27.1 might mean going forward.

Click on the chart to enlarge it. We are focused on the green line in the bottom pane.

The Rules:

Buy $SPY at the close if

  • Yesterday the % AbvMA20 > X
  • Today the % AbvMA20 < X

$SPY is sold Y days later. All $SPY history was used. No commissions or slippage included.

The Results:

I started with X=28 since % AbvMA20 closed at 27.1. I have noted in previous posts that when this indicator gets near 20, $SPY is typically near an intermediate term bottom. These results bear this idea out.

Unfortunately, at 27.1, we may have a couple more weeks of up and down and volatility before beginning a solid uptrend. In other words, the market needs to fall farther before it nears an area on which it has typically found stronger footing.

12 Responses to “The Farther We Fall, the Closer We Get to the Bottom”

  1. You think the bottom will be around 1350 ? Thanks Woody.

  2. Nice Wood. Thanks.

    Hey, I had a question about the honey hole I never voiced last week:

    You mentioned that it’s a rare indicator, but statistical something that’s rare is prone to misreading (few observations, higher volatility).

    So, when you say it’s rare, do you mean it’s rare but well observed (lots of observations but they occur far apart and in special circumstances).

    Or do you mean rare (this has happened twice, but both times resolved this way…)?

    Thanks

  3. Murderhole Explorer

    I think the 20 day number closed close to 15 today. We either bounce or crash

  4. [...] believe we have seen the worst of the carnage, at least for the short-term. The % of stocks above their 20 day moving averages is at historically low levels, levels that almost always mean an intermediate term bottom is near. This metric closed last night [...]

  5. Woodshedder, where do you get your data from for this study?

Comments are closed.