CBI Only At 2 After Thursday's Drop

So the big question I got yesterday from readers was “What’s the CBI reading?” For those new to the blog the CBI is my Capitulative Breadth Indicator. There is a system I’ve traded since 2005 that I call my Catapult System. It basically looks to buy into S&P 100 stocks that are undergoing capitulative selling. The CBI measures the number of active triggers. When it moves up to levels of 7-10 or more it suggests the market as a whole is becoming oversold to the point that a reversal is highly likely. Extreme selloffs like October 2008 and September 2001 have seen it go much higher (into the 40’s). I wrote many posts about the CBI in 2008 and 2009 since there were so many selloffs that induced high readings. For more information and related research you may us the link below.

http://quantifiableedges.blogspot.com/search/label/CBI

Also, below is the original CBI intro post and explanation.

http://quantifiableedges.blogspot.com/2008/01/my-capitulative-breadth-indicator.html

Since the March 2009 bottom the CBI has not had a significant reading, with the highest only reaching 3. It hit 2 a few days ago and even with yesterday’s selling did not move any higher. Though I checked in the middle of the 2:45 madness and if the market closed there it would have been a “6”. A high CBI is certainly not required for a rally, but I’m personally more comfortable getting aggressively long when I see it.

Should the CBI spike higher over the next few days I will be sure to note it here. And as always I will share the individual Catapult trades that make up the CBI in the Subscriber Letter.