In the next weeks and months, I will be putting together several pages that detail a stock market system that helps to identify turning points in the stock market. I developed this system over the course of about two years on another blog. That blog was set up specifically to track a tool that I created which I called a Signal Generator. But there were problems with that tool and because of that I expanded the blog to include several breadth indicators. In doing so, I was able to better understand what was going on beneath the hood of the stock market. This blog will lay out all the various indicators that I now use and will also lay out how to interpret these indicators.
Is this system perfect? Absolutely not.
Does the system work all of the time? No, but it does work most of the time.
When the system doesn’t work, what’s the fall back? A trend line.
You’re not going to get off easy. You’re not going to be able to come to this site and get ‘buy’ and ‘sell’ recommendations. You will have to set up a daily log and track the readings from the various breadth indicators that I use. For instance, $NYUPV is a key component of my system. Most of the time it just gives neutral readings, readings in the 100’s and higher. You log these readings every day just so you keep your finger on the pulse of the market. But when the market begins selling off, as it has been doing over the past couple of months, then that’s when you start paying more attention to $NYUPV.
When the market begins to pull back, one never knows just how deep the pull back will be. A pull back that lasts several days and/or weeks will usually not end without a climax selling event. $NYUPV will let you know when there has been such an event with an end-of-day reading at or below 80.
If you look at the linked chart of $NYUPV above, you will see that there have been ten such instances so far in this decline where $NYUPV closed out the day with a reading below 80, and yet no bottom. Why?
No single indicator or stock market system is perfect, nor is the one I will detail on this blog. If there were a perfect system, then everyone would discover and use that perfect system which would doubtless lead to a failure of that perfect system. But you can be educated and aware of what is going on and why the market is behaving as it is and this is my intention.
While I get the rest of this blog up and running, I suggest that you take that chart of $NYUPV and back test it from the March 09′ lows to the present. While you’re doing that, note the number of accurate signals $NYUPV gave. Then take that same chart and go back to the 2007-2009 decline and note the number of inaccurate signals $NYUPV gave because I do believe that this current down trend has the potential of mirroring the 07′-09′ decline unless, of course, the Fed intervenes with QE-3.
Another thing you can do is head over to Charts-A-Pallooza and click on ‘Breadth Indicators.’ There you will find all but a couple of the indicators that I follow and that are used in this system.
Only the paranoid survive and right now the paranoid are mostly in cash.