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MMFI Is A Key Measure of Stock Market BreadthI recently updated my piece defining oversold and overbought conditions using MMFI or the percentage of stocks trading above their 50-day moving averages (DMAs). Here is the key text from that post: Above the 50, AT50, is overbought above 70% Above the 50, AT50, is oversold below 20% The Technicals of Converting from Above the 40 to Above the 50 Converting from Above the 40 to Above the 50 is relatively straightforward because the two measures are closely correlated. TradingView provides historical data back to January 2, 2002. Worden provides historical T2108 data back to 1987. The correlation over 8 1/2 years is 0.95. Over 20 years the correlation is 0.95. Thus, the relationship looks sufficiently consistent over time. Above the 50, AT50 (MMFI) and Above the 40, AT40 (T2108) are highly correlated. The correlation between AT50 and AT40 are highest at the extremes and worst in the middle. The correlation is better at the lower extreme than the higher extreme. Fortunately, the extremes of market breadth provide the most information for trading (overbought and oversold). The equation shown in the chart comes from the black diagonal trend line. The linear approximation of the above scatter plot provides the new threshold values. AT50 overbought = ( – .3954) / 1.0007 = 70%. AT50 oversold = ( – .3954) / 1.0007 = 20%. So while wide variability exists in the relationship between AT50 and AT40 in the middle of the 0% to 100% range, the relationship works well at the extremes. The Precision of the New Overbought and Oversold Thresholds I examined the precision of the new overbought and oversold thresholds to add a layer of reassurance for this conversion. Over the 20 years of data, the minimum value for AT50 for any AT40 overbought period is 55%. Accordingly, capturing any and all AT40 overbought periods requires triggering the overbought trading rules with AT50 above 55%. This conservative approach to eliminating false negatives for overbought provides 100% recall but poor precision. Using 100% recall would trigger overbought trading conditions 54% of the time based on the past 20 years of history. Something that happens the majority of the time is not an extreme! Thus, for trading extreme market conditions, precision is more important than recall. The maximum possible value for AT50 for any AT40 oversold period was 42%. Even intuitively, traders can recognize that 42% is not low enough to define meaningful oversold conditions. Indeed, AT50 has traded below 42% for 25% of the trading days in the past 20 years. Precision in Chart Form The charts below provide a visual of these relationships. Each bar defines a “bin” which is a range of values. For example, think of the 70% bar as representative of all percentages starting with 70, like 70.1, 70.5, 70.9, 70.99, etc… The green bar marks the threshold for overbought in the first chart and oversold in the second chart. The yellow bars provide alternative thresholds based on the relatively high odds. The height of the bar represents the “odds” that AT40 is overbought (or oversold) given the value of AT50 on the x-axis. I calculated the odds as the percentage of time that AT40 is overbought (or oversold) given the value of AT50 over 20 years of data. These charts show that the oversold trading period is more distinct than the overbought trading period relative to the AT40 definitions. Of course, if I started my work from AT50, this fuzziness would not be an issue. Regardless, traders should not treat the overbought and oversold thresholds as numbers fixed in stone. When the stock market approaches these thresholds, I use other data to identify when trading conditions are “close enough” to oversold or overbought. For oversold conditions, the volatility index (VIX) is useful. For overbought conditions, I look for signs of buying exhaustion as the stock market falls out of or away from overbought territory.
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by drduru
US Market Technicals Ahead (18 October – 22 October 2021)Better than expected Q3 earnings reports from major banks powered global stock indexes to a winning week with most banks beat significantly on the top and bottom line. The earnings season continues this week, with companies such as IBM ($IBM) , Netflix ($NFLX), Tesla ($TSLA), Intel ($INTC), Johnson & Johnson ($JNJ) and P&G ($PG) reporting their results. Elsewhere, figures on Q3 China economic growth (GDP) today will show the impact of multiple recent hits to the world’s second largest economy. The forecast is projected at 5 percent in the three months to September, slower than the second quarter’s 7.9 percent, amid pressures on factories from power shortages, supply bottlenecks and a resurgence of domestic COVID-19 cases. Meanwhile, the first bitcoin futures ETF is set to begin trading, propelling the digital currency closer to all-time highs. Here’s what you need to know to start your week. Market Technicals $SPX (S&P 500) U.S. stocks were higher as $SPX posted its largest weekly percentage gain since July, after major banks rounded out a strong start to Q3 earnings, though investors will stay on the lookout in the coming weeks for signs of impacts from supply chain disruptions and higher costs, especially for energy. The benchmark index $SPX rallied +1.82% (+80.03 points), closing the week at 4,471 level. $SPX have broken out of all major moving averages (notably its 20D and 50D MA) on the final day of the the week, a second follow through price action after an imminent intraday reversal on Wednesday session. The immediate support to watch for $SPX this week is at 4,320 higher low support level, potentially re-establishing its mid-term uptrend channel. Earnings Dozens of companies will be reporting in the coming week, including Tesla ($TSLA), Intel ($INTC) and Johnson & Johnson ($JNJ), as the first major wave of third quarter earnings results gets underway. On Thursday Netflix ($NFLX) kicks off third quarter reporting for the ‘FAANG’ group of U.S. tech giants Facebook ($FB), Apple ($AAPL), Amazon ($AMZN), Netflix and Google-parent Alphabet ($GOOGL). The video streaming company said “Squid Game” has become its biggest series launch ever and Bloomberg reported that the megahit will create almost $900 million in value for Netflix. Chinese GDP In recent months the Chinese economy has taken a series of blows from the Evergrande-induced property market crisis, outbreaks of the delta variant, an energy crunch, supply bottlenecks and soaring commodity prices. So, investors will be closely watching Monday’s Q3 GDP, which will be released alongside figures on factory production and retail sales. Economists are expecting growth in the world’s number two economy to have slowed to 5.2% year-on-year, the slowest in a year, from 7.9% in the previous quarter. China’s real estate sector, a key driver of growth, is reeling from rising defaults, with sales tumbling and construction slowing as Evergrande, once China’s top-selling developer, battles against default on more than $300 billion in debts. Bitcoin futures ETF The first U.S.-listed bitcoin futures ETFs are set to launch in the coming week, barring a last-minute objection from the Securities and Exchange Commission. The ProShares Bitcoin Exchange Traded Fund is scheduled to start trading on the New York Stock Exchange on Tuesday. A day later, the Invesco Bitcoin Strategy ETF, would also be allowed to launch unless the SEC blocks it. The ETFs will be based on bitcoin futures that already trade on the Chicago Mercantile Exchange rather than the cryptocurrency itself amid regulatory concerns over a potential lack of liquidity and the risk of price manipulation on spot exchanges. The launch of the ETFs could pave the way for a stream of similar products, potentially fueling a run higher for the world’s largest digital currency which hit peaks of $62,892 on Friday, not far from its all-time highs of $64,778
SP:SPXLong
by jfsrevg
Just a little bullish sign I usually use this chart to see the health of the stock market. The INDEX:MMFI is a good indicator to see if an uptrend is backed by the mayority of the stocks that play the market and not only the big caps leaders. This little divergence between the price action and its RSI shows that this indicator may go higher. Although, is a short term time frame so I'm still very cautious about getting in again. Another good chart that I looking is the quotient SPY/UST, and recently it made a breakout to new highs. So, here are to bullish signals for the overall market. Still, the volatility is to high so, be very picky with the stock you buy or short.
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by dpuleo19
A chart to measure the health of the market $MMFI @TradingViewI often look at INDEX:MMFI to keep an eye to the momentum of the market in general. For me its like another Advance Decline Line of the TVC:SPX but with a little better information. Now I can see that for the past 6 years, every time that percentage hits more than 84%, the TVC:SPX is in the beginning of really good bull run, but normally is just after a market correction. The great Mark Minervini recently tweetted "Fundamental backdrop remains bullish. I'm not calling for a bear market, but a run up from current levels with increased bullish sentiment would likely be a selling opportunity before a market correction.". His opinion is one of the most influential in my trading so, I´ll be very careful this upcoming days.
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by dpuleo19
1
What's next for the SPX?The SPX has been up and down more than a yo yo over the past year. Should traders and investors expect more of the same going forward? What's next for the SPX? The index has enjoyed a solid run up to this point since February lows gaining over 16%. In early May the 50/200 moving average 'golden cross' gave a bullish signal. Backtests show the 'golden cross' 4/5 times will result in a winning trade over the next three months. The index went on to gain another 5% from that point. But on Friday we saw a sizable jump in the VIX to over 17, the highest close in over 3 months. For several months now the VIX has continually revisited below 14, nearly 1 standard deviation below the 200 day average of 18.5. The MMFI (the % of stocks above 50 day average) made a sharp pullback at 74% at 1 standard deviation above the 10 year average of about 54% . There's just a few obstacles standing in the way contributing to a sizable "wall of worry": According to the Financial Times the latest Brexit polls show 46% leave to 44% remain. The implications of a potential "Brexit" are massive. Earlier this month the May jobs report was much weaker than expected showing only 38,000 jobs were created vs. 162,000 expected. Below the 10 year average and the lowest since 2010. This dashed hopes for a stronger economic recovery and the market now anticipates the Fed will put a hold on any rate hike this summer. i.imgur.com SPX earnings have not made any real gains since 2014 and have been declining for some time. According to Factset: "For Q2 2016, the estimated earnings decline is -4.9%. If the index reports a decline in earnings for Q2, it will mark the first time the index has recorded five consecutive quarters of year-over-year declines in earnings since Q3 2008 through Q3 2009." i.imgur.com Currently the market is valued at nearly 17x forward earnings, higher than it was at the last market peak in 2007 and far above the historical average of 14.5 i.imgur.com Yes, the earnings estimates for 2017 are higher from here, but they are steadily falling as time passes (much like the estimates of previous years). i.imgur.com The transportation index is often considered a 'leading indicator', an important factor in Dow theory. The transports need to get moving and lead the broader market in order to reach new highs. Doctor Copper has a Phd. in economics, as explained by analysts at Raymond James: "Copper can be seen as a measure of risk-on. The commodity, affectionately known as “Doctor Copper”, shows a strong tendency to gain in price in anticipation of improving global economic demand. Given the commodity’s widespread application in homes, industrial applications, electronics and power generation/ transmission, demand for copper is often viewed as a reliable leading indicator of economic health. " The PCC (Put to Call ratio) is also rather interesting to study. When the lows are under 1 standard deviation from the year average the market often appears to have peaked for the short term: As always, I'd love to hear your thoughts or comments! EDIT What's this strategy report shown here? I've been playing around with an RSI 'dip buying' script which appears to have attached itself to my article. =D A topic for another post at some point in the near future! It appears to have some promising results that would be fun to collaborate with other traders on.
AMEX:SPYShort
by dime