Skip to main content
No. of Recommendations: 12
You don't want to see NH-NL negative at almost the same day as a fresh market high.
...
This is a moving average? Not for a single day?


Either : )
But usually a moving average.

Even if the two things happen (top and bad breadth) within a week of each other it's usually a very bad sign.
It means that, though the index is hitting fresh highs, breadth has narrowed so much that the advance is relying on fewer and fewer stocks.
In effect, more stocks are closer to their lows than to their highs.
That's pretty typical at the end of a bull market, though it also happens at intermediate waypoints during the bull.
This is one omen that would have saved you in 1987, for example. One of the few.

Here is my weak attempt at a top detector.
Red dots show the dates it gave health warnings.
http://stonewellfunds.com/TopDetector_2012-09.jpg
(that graph ends in 2012)

It has triggered 6 times since 2015, most recently February 27.
As mentioned, it's not very good at its job.
But they weren't totally random...average six-month forward return in that stretch has been +10.6%/year rate.
But the average five week forward those six signal dates was -33%/year rate.

The signal 2018-10-05 was not too bad.
It was 1.5% lower and 11 trading days after the temporary top...not so late that it was worthless.
It didn't turn out to be a major or lasting top, but I count that as success.
The lowest point in that slide was 18.5% lower, 54 trading days later on Christmas eve.

Conveniently, my "major bottom detector" then triggered.
Following my usual rules you'd have got back into the market at close on December 27th, 5.8% off the bottom and 13.7% below the October "top" signal.
I didn't use the top signal, but I did do some buying on that bottom signal. Many bucks worth...

Jim
Print the post  

Announcements

What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.