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.
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.
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.