Friday, March 18, 2011

CBI Reaches 10 for 1st Time Since July 2010 - Signals a Bounce

Despite the market move higher on Thursday the Quantifiable Edges Capitulative Breadth Indicator (CBI) rose up to 10.  The CBI is basically a measure of the number of capitulative selling triggers that are active among S&P 100 stocks at any one time.  Ten is a level I have discussed numerous times in the past.  Readings this high often lead to short-term rallies.  Below is a strrategy I've shown before that utiilizes the CBI.  It looks at entering the SPX when it reaches 10 or higher and then exiting when it returns to 3 or lower.

As you can see, results here are very good.  It isn't an exact timing tool, though.  The average, runup and average drawdown are both about 3.5%.  So there is has been quite a bit of volatility associated with these setups.  The average trade takes 8 days to complete.

A detailed description of the CBI may be found here.

Numerous studies and posts associated with the CBI may be found here.

If you would like to be updated on CBI readings you may follow me on Twitter.

1 comment:

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