Fred; They use the most active stocks , ( not one day runners )
but the most active on a regular basis, however even that
group changes over time so it can't be back tested very easily
beyond 6 months.
The divergence spikes show up but then in time
mostly get run over with the other index, they are so close it's hard
to separate them on a chart unless you could do a very huge
chart.
As with most charts as you go back in time you lose
detail. On top of that I'm not the best at creating charts.
So I can't say at this time how regular the DVI spikes , except
to say it spikes more when the market is volatile, and the
more volatile the market the more it spikes.
AS for the batting average so far it's been 100%
if the spike is strong.
The DVI is still a work in progress, and I'm still tweaking the
time window on the dollar volume average to see if I can improve
or make the spikes show up better.
I suppose one will find that if your tracking and comparing say
the NDX to a DVI of the most active NDX stocks, the average window
may be ideal at 10days , ( what I'm now using )
but say with the SPX the window may be best longer.
By window I mean how many days you average the dollar volume
to get a weighting, this can be done to suit the person.
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The general idea is to use the most popular traded stocks
in what ever index, ( by dollars traded ).
Compare the results percentage wise with the index your tracking ( most of which are weighted by market cap )
The DVI uses Volume X Price instead of market cap.
Cut in half the volume of nasdaq stocks
if you have NYSE stocks in the same index, the NAZ counts volume
twice.
Stay reasonable abreast of the most active by dollar.
It's a lot of work but It works good,
If you set one up you will soon see that it also
damm near eliminates the need to look at or guess about
market internals, as the exposure of market internals is
built right in, via the volume x price.
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Other things become noticeable after you start using it.
Take today on CNBC Bob Insanity made a big deal playing
down the drop because volume was light, well over all volume
was light BUT the DVI wasn't it was 113% of normal the normal
every stock in it was down,
Next post I'll show you which I'm using for the major SPX
index ( it's only 11 stocks )
Jim
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