Tuesday, July 8, 2008

Another Breadth Indicator Hitting Extremes

One breadth indicator I like to watch is provided by Worden Bros. It measures the % of Stocks that are trading at least 2 standard deviations below their 40-day moving average (T2116). Rather than looking at stocks that are simply in a downtrend like the “% of stocks below the 40-day MA”, it looks for extreme readings. Of all the commercially available breadth indicators out there, this one most closely represents the spirit of the CBI. While the criteria are less stringent, it is still looking for somewhat extreme conditions to measure. Today T2116 hit a new high of 58.1%. The indicator dates back to 1986. I looked back to find all days that had readings higher than today’s. It was a short list: 7/23/02, 9/20 & 9/21/01, 8/31/98, and lastly 10/19/87 (Black Monday) through 10/28/87. That’s it. If you take a look at those dates you’ll find they were very opportune times to buy.

Of course breadth has been suggesting a reversal for a while now…

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3 comments:

Dave M. said...

The T2108 is the chart of the % of stocks above their 40 day MA. It's down to rare lows of only 8%.

Dave M. said...

An old market sage once said that a sure-fire buying indicator was when the % of stocks over their 200 day MA was 10% or less. He said you could "buy 'em blind". It got to 17% last march, now at 22%.

dave M. said...

Sorry, I should have mentioned that the symbol at stockcharts.com was "$nya200r", for this indicator.