Breadth deteriorated with price causing 3 of 4 indicators to give buy signals.
Summary:
My cautious stance, derived from the Breadth Report readings, paid off as I was largely out of the market for the recent pullback. While breadth is not strong and is deteriorating, 3 of 4 indicators are giving buy signals, with the 4th indicator very close to giving a buy signal. Perhaps another bounce is due.
Caution is warranted anytime we are trading beneath the 50 day moving average. The number of stocks in an uptrend (gray histogram) has deteriorated to a level that is consistent with a correction. We want to see this histogram strengthen before removing a cautious stance. Lucky for the bulls, we are barely above the 200 day moving average. As long as we hold this average, the Number of Stocks above the 5DMA indicator and the Advance Decline Line indicator will keep giving buy signals. Closing beneath the 200 day moving average, and then a retest and fail to re-take the average will mean we move into short mode.
Buy Signals for Monday Morning:
1. Advance Decline line
2. Raw Advancers and Decliners
3. 52 Week New High and New Lows
How To Read the Breadth Report
Universe Screen: Applies to top three indicators. Does not apply to 52 week new highs and lows.
- The universe contains any stock trading on average more than 100,000 shares per day with a liquidity of at least $1,000,000 per day, over the last 50 days.
1. Top most indicator is the measure of stocks in an uptrend (gray histogram) and the number of stocks trading above their 5 day simple moving averages (red line).
- Buy signal is generated for the open when the SPX is above its 200dsma and the red line crosses beneath 700.
- Sell signal is generated for the close when the red line crosses above 2500, or the trade is held for 25 days.
- Short signal is generated for the open when the SPX is trading beneath its 200dsma and the red line crosses above 2500.
- Cover signal is generated for the close when the red line crosses beneath 700, or the trade is held 25 days.
- Long trade lasts on average 24 days while short sell lasts on average 10 days.
2. The 2nd indicator is the Advance-Decline line (blue line) with a 50dsma plotted (gray line). My calculation is similar but not the same as Investopedia’s.
- Buy signal is generated for the next open when the SPX is above its 200dsma and the A-D line crosses beneath the 50 day average.
- Sell signal is generated for the close when the A-D line crosses back above the 50 day average.
- The average trade lasts about 15 days.
3. The 3rd indicator is the raw advancers and decliners, with the advancers being the green line and the decliners being the red line. There are also Bollinger Bands (purple) set 1 standard deviation beyond the 20 day average of decliners.
- Buy signal is generated for the next open after the decliners exceed the upper Bollinger Band.
- Sell signal is generated for the close when the decliners close beneath the lower Bollinger Band.
- The average trade lasts 5 days.
4. The bottom indicator is the measure of 52 week new highs new lows (histogram), with a 9dsma (yellow line) plotted over top.
- Buy signal is generated for the next open after the number of new lows exceeds the number of new highs.
- Sell signal is generated for the close when the number of new highs surpass the 9dsma.
- The average trade lasts 3 days.
http://slopeofhope.com/2010/05/it-cant-be-any-clearer-by-george-rahal.html
Interesting stuff Scum. Not sure why you posted, but interesting nonetheless.
Glad you found it interesting Wood. I don’t know why I posted it, partly to play the troll and partly for the balance perhaps?
Best.
Scummy
Is this yours or Danny’s thing, Wood?
_________
Whose blog are you reading, Jake?
Jake, are you serious? borderline insulting to all of us.
Of course I’m serious.
_________