Advance decline skew bodes well for the market

Friday, October 03, 2003 | 10:08 AM

On Wednesday, advancing issues beat declining issues by a 4.8-to-1 ratio on the NYSE. It’s worth noting that such a positive skew is very rare.

Tony Dwyer of FTN Midwest Research decided to see what that ratio meant over the history of the S&P 500. Dwyer, working with Jason Goepfert of SentimenTrader.com, they observed that there's been

"54 occurrences since 1965 of NYSE advancing issues beating declining issues by 4.5-to-1 or greater ratio. If you strip out those high ratio days that were within 3 months of the first instance, there were only 29 Initial occurrences. Taking it a step further, we looked for only those initial occurrences in the context of a market trading above the 200-day moving average (most similar to Thursday’s occurrence). There were only 11 instances of such positive breadth when the SPX was above it’s widely followed long-term moving average. The following are the results of all three ways to study it and what took place 90 days after"

Using a benchmark of NYSE 4.5-to-1 A/D (or greater), they broke the stats down as follows:

Total Occurrences: 54 instances, with the S&P 500 (SPX) up 3 months later 77% of the time; Average gain = 8.3%. Note this includes closely located significant breadth days.

Total Initial Occurrences: Out of 29 instances, 69% of the time, the SPX was up 3 months later with an average gain of 6.4%.

Total above 200-day moving average Initial Occurrences: Out of 11 instances, 10 were positive and 1 was negative with an average gain of 8.3%, a maximum gain of 19%, and the one loss of 4.4% in the signal of 11/26/79.

All told, a very significant set of correlations. This is not unlike simlar price/volume studies done by Ned Davis Research in the 80s, and the 90/10 volume/price day work by Paul Desmond of Lowry Reports. (Discussed in our contrary indicators piece).

Friday, October 03, 2003 | 10:08 AM | Permalink | Comments (1) | TrackBack (0)
de.li.cious add to de.li.cious | digg digg this! | technorati add to technorati | email email this post

bn-image

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c52a953ef00d83537ba0469e2

Listed below are links to weblogs that reference Advance decline skew bodes well for the market :

Comments

Great analysis. I've read the Lowry analysis several times and from a big picture perspective, this (90/10, 4.5 to 1 ratio)is the best predictor.

Posted by: Joe K | Jan 25, 2008 7:25:33 PM

The comments to this entry are closed.



Recent Posts

December 2008
Sun Mon Tue Wed Thu Fri Sat
  1 2 3 4 5 6
7 8 9 10 11 12 13
14 15 16 17 18 19 20
21 22 23 24 25 26 27
28 29 30 31      

Archives

Complete Archives List

Blogroll

Blogroll

Category Cloud

On the Nightstand

On the Nightstand

 Subscribe in a reader

Get The Big Picture!
Enter your email address:


Read our privacy policy

Essays & Effluvia

The Apprenticed Investor

Apprenticed Investor

About Me

About Me
email me

Favorite Posts

Tools and Feeds

AddThis Social Bookmark Button

Add to Google Reader or Homepage

Subscribe to The Big Picture

Powered by FeedBurner

Add to Technorati Favorites

FeedBurner


My Wishlist

Worth Perusing

Worth Perusing

mp3s Spinning

MP3s Spinning

My Photo

Disclaimer

Disclaimer

Odds & Ends

Site by Moxie Design Studios™

FeedBurner