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Short Term Breadth Pointing to a Bounce

And by short term, I mean very very short term. A signal given from this indicator means a bounce is imminent. For this shortest-of-terms measure, I use a bounded decline line indicator, which simply counts the number of declining stocks, compares that number against previous readings over the last 252 days (one trading year), and then ranks this reading against the others in percentage terms. It is bounced because ranking the reading in percentage terms means it is bounded between 0 and 100.

Let’s have a look…Click on the chart to make it bigger.

Breadth 5_31

The decline line indicator (green line, middle pane) is showing a reading of 96.03. Readings in the 90s are typically followed by an immediate bounce, or at the very least, a few days of stabilization. Once the bounce or stabilization occurs, everything resets.

The red indicator in the bottom pane also measures short term breadth but is better for gauging how sustainable a bounce might be. When this indicator gets a reading in the 600s or lower, and the decline line indicator is also indicating a bounce, then I look for bounces that will work for swing trading. In other words, this indicator can help us find bounces that last a few days or more. Since the indicator is currently reading 939, the market has probably not pulled back far enough yet to yield a swing-tradeable bounce.

The bottom line is that I’m looking for a bounce Monday or Tuesday (at the latest) or some stabilization, but expect that this pullback can continue before we get a good tradeable bounce.

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Technical Difficulties

Vincenzo stopped by and spilled some gravy on my AmiBroker and a host of technical difficulties ensued. I hope to be back up and running, backtesting, charting, etc., tomorrow.

I now return you to your regularly scheduled bull market.

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Fidelity Sector Funds Rankings Displaying Odd Mix

I’m not sure what to make of the top 5 ranked funds. While utilities have dropped out, the rankings are still somewhat defensive, favoring healthcare, pharma, and consumers.

  1. FSPHX (Health Care)
  2. FDFAX (Consumer Staples)
  3. FPHAX (Pharmaceuticals)
  4. FSCPX (Consumer Discretionary)
  5. FSPCX (Insurance)

Another way to look at these rankings, since the formula punishes volatility, is that these funds have been some of the least volatile, over the last year. Add a strong bull market with low volatility of these funds and they have risen to the top of the rankings. I’m still not sure what to make of it.

YTD, the Fidelity Sector Fund Rotational System is up 14% vs $SPY return of 16.2%. The system has been ahead of the S&P 500 for most of the year, but the relentless bull moves have finally made sitting 100% invested more attractive than trying to capture alpha through following the hot sectors.

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