Assessing Market Action With Indicators And History
Tuesday, March 3, 2009
CBI of 12 Suggests Bounce is Near
I’m beginning to see some indicators hit truly extreme readings – most of them breadth indicators. One indicator I track that finally spiked up to an extreme reading Monday is the Capitulative Breadth Indicator (CBI). It now stands at 12 and could spike quite a bit higher on Tuesday if the market fails to rally. I’ve discussed in the past that there is a strong bullish edge when the CBI moves over 10. A “system” I’ve discussed in the past is buying the S&P when the CBI reaches 10 or above and then selling when it returns to 3 or lower. This system was perfect from 1995 until July 2008. In July it suffered its 1st loss and in October it suffered its 2nd loss. November spike above 10 nailed the bottom and turned into the a 19% gain - the biggest ever for the system. Some detailed statistics are below ($100k/trade, 1995-present):
The CBI is one indicator suggesting a bounce is near.
In this blog I will be examining market action and quantifying my findings. Using sentiment, breadth, price and volume indicators - both standard and customized - I will try and uncover short-term edges which could be taken advantage of by market participants. I will frequently add opinion to these studies and may sometimes post opinions without quantifiable research behind them.
All content on this site is provided for informational purposes only. It is NOT a recommendation or advice to buy or sell any securities. I may hold positions for myself or clients in the securities or industries mentioned here. There is a very high degree of risk involved in trading securities. Your use of any information on this site is entirely at your own risk.
I have traded professionally since 2001. From January 2003 through February 2007 my bi-weekly column "Rob Hanna's Putting It All Together" appeared on TradingMarkets.com. I have been conducting quantitative research and designing trading systems - mostly focused on short-term edges since 2004.