Joined Nov 11, 2007
1,458 Blog Posts

5 Day Moving Avg Indicator Signaling Breadth Bounce is Near

With $VIX reversing to the downside to create a tombstone doji and $SPY reversing to the upside to make a bullish hammer, it appears the bounce will start tomorrow.  I’ve got another simple indicator that is also signaling that a bounce is imminent: the number of stocks trading above their 5 day moving averages.

The Rules:

  • Buy $SPY at the close when the number of stocks above their 5 day moving average is less than 700.
  • Sell $SPY at the close X days later.
  • No commissions or slippage included.
  • All available $SPY history used.

The Results:

Some Additional Stats:

Next Day Winning Percentage: 50.11%
5 Day Winning Percentage: 55.04%
Median Trade After 50 Days: 2.38%
Average Trade After 50 Day: 2.22%
Number of Setups: 443
Number of Trades Held 50 Days: 86

This study triggered a buy on the close of the 26th. This means that tomorrow will put us at day 3 on the chart above. As I stated in the beginning, I believe $VIX will pullback and $SPY will bounce, if only because the rubber band typically cannot be pulled very far to the downside before snapping back.

Below is a chart with the indicator displayed.

We are focused on the red line in the bottom pane.

Also note that the decliners indicator (green line) is falling and approaching a neutral area. This means that the market has been stabilizing.

Related Post: $VIX Explodes: Bullish or Bearish for $SPY?

If you enjoy the content at iBankCoin, please follow us on Twitter