MMFI trade ideas
Broad market trends revealed by MMFI MMFI is the TradingView symbol for the percent of all NYSE stocks (NYA) closing above their own, in the case of MMFI, 50 day simple moving average. (TV also offers S5FI, the SPX above 50 SMA and, other length averages). I like the 50 for my purposes which is swing trading.
I analyze the daily value of the Heikan-Ashi MMFI of the TV Community Script "Accurate Swing Trading System - by Ceyhun" with a parameter of 13 and draw an "Overbought" line at 75% and "Oversold" line at 25%. Add "Machine Learning: Lorentzian Classification" and default MACD for confirmation. Don't trade without it.
Check out the chart. Make up your own mind what it says the trend is now.
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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.
Chart of the Day: Percentage of Stocks Above the 50-Day AverageThe pressure on the market is mostly down. The number of stocks above the 50-day Average is moving downwards and that shows weakness. At the same time, it can act as a contrarian indicator.
Do you think the market will go further downwards before it finds a bottom?
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P.S. It's important that you make your own analysis and trade within your risk parameters.
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.
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.
Overall US stock market trend analysis on the weekly MMFIThe market breadth upswing is just getting started. Expect volatility along the way, but know that you are on the right side of the weekly trend. Long trades will likely play out better than short ones, going forward for the next month or two.
Also have a look at the daily MMFI chart for a closer look at the day-to-day.
God bless you, and may you be richly rewarded for your diligence and patience.
US Market Breadth Trend Analysis - Expecting Buy SoonThis chart is looking at the % of US Stocks Above their 50-Day Moving Average (ticker = MMFI), which is an excellent way to gauge market breadth and buy/sell entry areas. We have entered the buy zone on the weekly chart and the buy confirmation will be when the line on the price chart moves upward from this buy zone. This is not a good time to be going short, as the down move is nearly complete. Go short on the next entry into the sell zone (green line turning to red on the price chart). The lower indicators help to confirm and anticipate the signals.
Leverage market breadth for timing stock trades that follow the overall market, which is most stocks. Always stay on the right side of the trend and maximize profits!
