Wednesday, July 2, 2008

CBI Hits 10 - Some Hypothetical Results

The Capitulative Breadth Indicator (CBI) closed at “10” on Tuesday (July 1st). Historically, this has been a reliable indication that the market is nearing a bounce. Using backtested data from 1995-2005 and live data from 2005 forward, there have been 18 instances when the CBI reached at least 10. Buying the S&P when it hit 10 and selling on a return to 3 or lower would have been profitable all 18 times. Below are some summary statistics ($100,000 per trade):





The max drawdown is important to keep in mind. A CBI of 10 is not magic. It doesn’t guarantee anything. It’s indicating that downside breadth is overdone. This shouldn’t be a revelation. Last week I showed another breadth indicator that was also overdone. It still is. Hopefully the market does what breadth says it’s supposed to do soon.

7 comments:

Anonymous said...

Hello Rob,

your backtest goes back to 1995. Did you take survivorship bias into account?

dansmo

Anonymous said...

Hi Rob,

Have you looked at the crash of 1987. If so what was the cbi leading up to it sand the day of

Tor Hershman said...

Assessing Market Action with indicaTORs and hisTORy to their most quintessential strata @ YouTube

http://www.youtube.com/watch?v=2LubuSAgB5s


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BH_Trade said...

Wondering how low CBI will be tomorrow, surely worse than -11. Curious what is the max level you have seen it Rob.

Anonymous said...

How high can CBI go? Maybe perfect storm tomorrow... Higher Euro rate which kills USD and Oil through the roof and bad job report... = market crash...

Marc said...

OMG, the CBI has been turned up to 11!

I guess 10 wasn't enough to push us over the cliff.

Cheers,
Marc

Rob Hanna said...

I'll try and get to all the questions over the weekend. In the meantime, perhaps you may want to check out this post from January:

http://quantifiableedges.blogspot.com/2008/01/cbi-spiking-how-bad-can-it-get.html