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[Strohem]

[QUOTE=isatrader;41657]Hi Strohem,

Interesting thread. I use the market breadth charts together in a similar way to yourself, but I focus on the slower charts mainly as I use them for a longer time frame. I really like Tom Dorsey's book on Point & Figure Charting and have developed my method from that and Stan Weinstein's Stage Analysis method.




isatrader,

Welcome to the thread. I apologize for not seeing your post (on 10/8) before the one I made last night.


The credit is not due me, but to Likesmoney who originally mentioned his interest in exploration of the $NYA50R. His reference to the Ten Week got my attention.

Also, any input I make in most of my posts should be credited to Tom Dorsey and his gang in Richmond - Watson Wright, Tammy DeRosier, Sue Morrisson, Jay Ball plus the newer additions, but most of all to Mike Moody in Pasadena, in their money management division. Mike essentially "mentored" me. He's pretty sharp - yet they all taught me much.

(They are literally a teaching university, and their database and track record prove it.)


I probably need to point out this: I am sensitive to short-term trading for the average portfolio. It kills relative strength and reduces portfolio performance. I avoid it. So, like you, I concentrate on 2-point BPI boxes in BPI's - and longer-term trends. It's important for most to seek the long-term ride. Yet, bear markets don't afford that readily. One needs to be more nimble.

I make meaningful moves in or out of the market as little as possible (again, excessive trading can be a relative strength killer) and I do so in graduated ways.

I'll enter a position as a trade in a bear market, but hope it turns out to be a position I hold. RS is the key.

Right now, there is nothing I haven't held (on the long side) for less than a year - options or hedges excluded - that weren't necessary. Ford calls are the exception in the past year... Sept '10 to January '11

I sold down - generally from 65% invested in March, 2011 - to 35% invested by mid-May. I put on hedges and shorts. I am not that long right now, and I haven't traded much (except the Ford calls) since late last year. That was a trade that worked out well. Hedges also worked out good this summer.

I'll take a trade as an entry, and plenty of names come to mind, but I seek more favorable LT cap-gains treatment. Unless I feel I can bag something better in 3-4 months that outstrips the tax punishment, I wont pull the trigger

This means (probably like you) I want the strongest names in a cheap market.


Please, stay involved in this thread. I enjoyed your post. We can all learn a lot from each other.




S

[isatrader]

Thanks for replying Strohem, you're clearly an experienced trader and well versed in Tom Dorsey and his teams methods. So I'm happy to have found this thread as I think it will help me to further my application of the point and figure relative strength methods they teach.

Using the signals from the breadth indicators I rotated out of my stocks and etfs in late April/early May and moved into treasuries and bonds for the summer months. Although I sold out of them too early at the beginning of August before the big move got underway, but they protected my capital and made a small gain so I was happy enough considering the stock market moves. But I'm on the sidelines at the moment still, as I'm waiting for confirmation from the four breadth indicators I use, but I'm conscious that we are in a stage 4 downtrend still so I'm cautious and any trades will likely be short term for the time being.

I am encouraged by the moves in the breadth indicators though, as three of the four I use have turned positive with just the $NYA200R lagging behind. However, I use a combination of Stan Weinstein's Stage Analysis as well which requires good relative strength and at least two times average volume, which as the S&P500 P&F Chart shows isn't there currently. So I see positive signs, but still need more confirmation before I'm ready to jump into anything, although as you mentioned in another post the NDX has the best relative strength and the least overhead resistance, so I'm thinking that might be the best performer in any new rally.

[Strohem]

$RHNYA – moved into a top at 84% yesterday and reversed down – bad time to go long. In O’s, a short time out.

$NYAHILO – Ten day average of the above, it bottomed at 22% twice and is now at 40%. Not bad, but the reversal down in the $RHNYA will arrest this indicator’s ascent.

$NYA50R – Still in X’s but has been making lower highs since late 2010. Decent position, however.



$BPOEX – tacked on two more percent today and now reads 60%;
warmed up nicely from a week or two ago. In X’s.

$BPNDX – moved to “bull confirmed” status today by rising above the previous column at 50%. X’s, now at 52.

$NYA150R – slightly up for the day but holding even. X’s at 18% bullish.

$NYA200R – same thing here, slightly up and holding even. X’s at 20% bullish.

$BPSPX – added a box today to 50%, but still below its September peak of 52%.



$BPCOMPQ – up slightly but not enough for a new mark. Still waiting to break out past the August rally level.

$BPNYA – Same as the COMPQ, but still waiting to break above the September level.






Short-term indicators remain positive, generally, and the longer-term indicators also are, but the RH suggests waiting a few-several days to buy. If you were to buy, would do so judiciously on pullbacks to obvious support.

Even then, keep stops in place. I’ll be more interested when this rally gets overbought.


All indicators/indexes are up handsomely from last week notwithstanding the “news.”


I wouldn't be surprised by some back-and-fill. I will use it to buy on proper set-ups... with carefully planned stops.


I'm rushed but these are my quick-notes.









S

[isatrader]

The $NYA200R joined the other breadth indicators that I follow by breaking above 30% today, so signalling a more risk on approach for me for the first time since May.

Attached are the charts

[Strohem]

Hi isatrader - I'm pleased you got your final confirmation in the break above 30% on the 200R.

I'm going to add some observations. Don't take them the wrong way. They aren't personal - except to me. They are “my” tools.




Short Term -

$RHNYA - the daily Hi-Lo sits at 85% after having formed a double top at 88% on the 2pt box chart. Peaky. Can go higher though.

$NYHILO - bottomed in early Oct. at 22%, matching the August low. Now rests at 78%. Also lofty, but can/could go higher.

$NYA50R – reversed down from 78% recently only to reverse back up on Wednesday. This follows a higher bottom in early Oct. at 10% which was a higher bottom than the August low of 6%. It has been topping all year (2011) in this range.


Bottom line, short term indicators are stretched and it would not be unreasonable to expect a pause or retracement in equity prices.


Mid Term -

$BPOEX – took out the August low but has rallied to high levels not seen since last April/May, 78%. Only 100 stocks in this universe, very nimble.

$BPNDX – Similar thing, took out August lows but has gained enough bullishness to approach July levels in this large cap tech 100 name universe. Currently at the 66% level, actual reading of 65%. Warm.

$BPSPX – Bottomed at August levels of 22% but has overtaken all correction levels to go on to 70%, matching July levels. Pretty warm and not at a place for thoughtless entries.

$NYA150R – In X’s at a low level, 30%, after laying down a good double bottom at 10%. Improving.

$NYA200R – Also in X’s at following a higher bottom early in October. Like the 150, it has reached 30%.


All in all, if I were to evaluate the market risk based on these 8 indicators and indexes alone, I would say that there was high risk. Only the two MA indicators – the 150R and 200R - remain bullish at or around 30%. The others are near/at 70% or above. This suggests some sort of a pause should be expected within the confines of a rally.

It makes sense… the market prices are up 17-18% off the early October bottom. The shorter term indicators almost HAVE to be overbought after a rally such as this. A 38-50% pullback of an advance should not be ruled out.


Long Term –

$BPNYA – Not at all overbought. At 52%, it may correct, but it would be like falling off a 5’ ladder. Not the same as the 2’ backyard deck, but far better than falling off of the 18’ roof. In X’s, it is bullish.

$BPCOMPQ – like the NYSE Bullish Percent, it’s not yet overbought. It’s laden with lower quality names (as a result of the size of it’s universe), but it’s still bullish at a lower level.


These are positives for the longer-term indexes. How long? Only the column and position of the column can dictate that.


Now, I only want to add that there are differences between indexes and indicators based upon whether or not they are calculated on price or on internal demand. Indicators like the 200, 150, 50 and the Hi-Lo are based on price. The Bullish Percent’s are based on supply or demand. There is a difference.

Naturally, the 30 and 40 Week charts (the 150 and 200R) will be slower. They are based on price-lagging indicators, of which moving averages are exactly that.


Again, all in all, we are in a bull cycle in a bear market. It’s imperative to be more responsive.


Anyone’s results may vary, but I’m a buyer on pullbacks and good setups. I’m not currently buying into this strength.


Also, the average Sector (sub-sector) BPI distribution is at 40-42%. That's a whole lot better than the 70-72% or more we see at market tops.





S

[Strohem]

On Monday, the 10-, 30- and 40 Week charts (50R, 150R and 200R) reversed down. Notably, the 10 week reversed down from a high level.

The “R’s” for the SPXA indicators look similar.

I’ve been looking foward some Fibonacci retracements to hopefully no more than 50% of the past 4 week's advance. We’re already knocking on some shallower ones. Since the peak last Thursday, 10/27 – a lack of follow-through on Thursday’s rout higher – and the past two sessions (Monday and Tuesday), declines have already put us in the area of 38.2% moves backward.

I had been hoping for "healthy" (slower) index moves in the DJIA back down to 11500-11600 and SPX 1175-1210. From Oct 4 through last week, the NYSE Composite Index gained 1450 points. It has given back 560 of them – a 38.6% retracement, and it did so on increasing volume today. This - in just three sessions!

It is a fast market, and price-related indicators like those mentioned above are responding quickly.

The Bullish Percents take (have taken) longer to respond with the exception of the more nimble ones and they still guide faithfully. This is to be expected, especially in a secular bear market. Many of them have raced to levels above 70%, have told us opportunity was much decreased and now they have begun to fade/suggest caution.

As an example, the narrow NDX 100 BPI reversed down today from 74 to 68 percent. It’s now in Bear Alert Status. Not to be surprised… it’s a small universe. The upside is that the broader BPI’s never got nearly as overbought, so we can assume this is a normal bear-market correction, one to be expected and played. It could set up some good entries for available cash at a higher bottom. Or not. Keep practical stops in place.

Bottom line is that sellers are re-entering the market for whatever reason. Profit-taking is likely the motive and “economic news” is probably the disguise.


I’ve been trying to think ahead a couple moves: 1) to be able to get defensive again to protect gains since 10/5, if needed, or 2) to locate places for entry to the long-side.

If we see pullbacks of more than half of the October rally, I’ll lean toward #1. Either way, it will be a judgmental decision… not purely mechanical but definitely not fundamental.


S

[Dennis]

Hello Strohem

do you know Martin Zweig ?. I know a professional trader of his success owes to him. Certainly, many roads lead to Rome. But Martin Zweig in his book to describe what one can see a future bull market. And one of these features was on 14.10.2011. It is the ratio of the ratio of rising to falling stocks. He says:. "It's very rare that a 2:1 ratio of rising to falling stock lasts over a long period of time (this was the case on 14.10.2011) If so, you may be right from a very strong impetus "speak. I've looked at this feature even more precisely and you must not say it comes in a recovery of a Bear market. So I think that we are already in a bull market correction.

Greetings Dennis

[Strohem]

Hi Dennis.

No I don't know Marty Zweig but I've learned a lot from his work.


One tool of Zweig's I follow is his Breadth Thrust Indicator. Is this what you're referring to? (It sounds like you're referring to A/D since you're speaking of ratios, so maybe I'm going the wrong direction...)

As for the Breadth Thrust Indicator, a ten day moving average of the $RHNYA crossed from below 40% to above 61.5% easily within his 10 day time frame about 2 1/2 weeks ago (beginning on ~10/13).

It very well could be the beginnings of a handsome bull move based on the credibility of Zweig's data.

As for myself, I'm certainly treating the market with bullish expectations. But, Carl Swenlin also made a good argument about a year ago that we are bound in a long-term trading range with an SPX ceiling around 1500.


http://blogs.decisionpoint.com/chart...ar-status.html

This is the secular bear market I am speaking of. I think I may have referenced in this forum before.

Just looked - actually, I did here: Strohem: DJIA Is Headed To 14047



From this current level (SPX 1240), that offers around a 20% upside opportunity to resistance. I think it's possible, and it would fit nicely into Zweig's bull-move model.


Nice to see you again, Dennis. I still owe you that response from early this year.

[Dennis]

Hello Strohem many thanks for your quick response.
Here again, the indicator I mean http://www.martinzweig.org/momentum-indicators.html

It's called Advance / Decline indicator.

Your "Breadth Thrust Indicator" I do not know? (I have Martin Zweig's book "Winning on Wall Street").

I'm also always when you write to me.

Greetings Dennis

[Strohem]

Sorry for my absence -- a couple projects over the past 18 months took to the front burner on the stove.

While we were close this past Monday, the primary BPI finally reversed down to a column of O's today (4/17/13).




Shorter term indexes and indicators have been "sketchy" lately but this is a pretty meaningful change. I'm only 25% to 35% invested in equities currently but looking for opportunities once the BPI(s) get washed out.


To be honest, I was market neutral for almost all of 2012 except for the first 6-8 weeks post-election. I was short the SPY from 01/19/12 until 11/21/21 and it cost me a lot of opportunity.

My reward... a paltry 5.5% return. I could have realized twice that or more if I'd have focused more on the market rather than other things. My other commitments took my eye off the ball and I had to rest assured a full hedge kept us in the game. Fortunately returns of 22 and 24%, respectively, in 2010 and 2011 were helpful.

2008-2009 didn't damage us too much either.


Some of the same names I've previously noted (BEAV, COST, FITB, NEE, PG, QQQ, SE and YUM, among others) had positive relative performance, and yet some are suspect. While being 105% hedged in '12, those names still netted a "moderate" return. Far better than cash. A few are now gone and others might be on the chopping block soon.


Back to the NYSE BPI... it has failed to overtake previous levels even while price (SPX) has positively diverged. The internals don't -- in my opinion -- currently justify risk on.

I don't have much time right now to go into detail but I need to say this; risk has been increasing.

50% of investment risk is due to the overall market action, 30% is due to the industry/sub-industry group or sector and 20% of the risk is attributable to the individual stock.

A rising tide floats all sound boats but a rapidly falling tide -- or an iceberg... or a big rock below -- can sink ships. Make sure the hull is secure.

Please be aware of that.


Strohem