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Strategies & Market Trends : A.I.M Users Group Bulletin Board -- Ignore unavailable to you. Want to Upgrade?

To: Bruce A. Bowman who wrote (4939)	7/1/1998 8:04:00 AM
From: OldAIMGuy	Read Replies (3) \| Respond to of 18928

Hi Bruce, Well, you are right, in a way. The Hi/Low Logic Index (what I term DIVERGENCE) had been low for the last few weeks as it looked like there was very little divergence in opinion about where the market was going (down!). Last week's data shows that there's a change in that opinion. There's simultaneously more new highs and still lots of lows. The way I read this is that the first rally bulls are starting their buying and the market bears are also still hard at work. It's a week of transition. If the rally continues, we'll see the new highs soar and the new lows shrink. This will confirm that the attitude has shifted fully to rally phase. The way I calculate it, it can never go to negative values, but can get quite small. I've found the Hi/Low Logic index very useful at calling out the end of rallies. It will be a low value during the middle part of a rally and then start to rise as the market starts to peak. It measures the "greater fool" aspect of the market. The first of the sellers are already getting busy (new highs starting to fall off) while those arriving late to the party consume those shares. Hi/Low Logic then starts to rise as the party ends (both new highs and new lows are large integers). My Best/Worst Index is there to measure speculative activity (hence SPECUL:ATION). When it signals very low positive numbers, like this week, or actually goes to negative values it is usually a good short term "oversold" indicator. Basically I take a sum of the percentage moves of the best performers(positive integers) and worst performers (negative integers) and fiddle with those values. If the Best are way up and the Worst aren't off very much, I get a large positive value. This signals speculative excess or our favorite "irrational exuberance." When very low or negative, it means that fear has gripped the market and everyone is selling to "stop their losses." An interesting aspect of the accounting of the Best/Worst Index is that a stock can go up 250% in 13 weeks, but no stock can go down more than 100%. So, you can see how difficult it must be for the index to fall to negative values. So if the average of the Best Performers is up 50% and the average Worst is only down 30%, that would give us a positive integer of "20" to work with. If the average best was up 40% and the ave. worst was down 45%, it would net minus 5. Since 1982, this has been a great confirming index of when the market is ripe for a rally. However, because speculative activity can continue for long periods, this index hasn't been as good at calling market tops. It can get to what I term "high risk" and stay there for months. So, one works to confirm market bottoms well and one works to signal that market tops are approaching. Because they are based upon different aspects of the market, they are not self-cancelling. Hope this helps a bit. How many of you look at the internal numbers of the Idiot Wave? I've always posted them, thinking that somebody might find a way to use them better than I do with the IW, but have no idea how many people actually use or record them. Please let me know here on SI or by email if I'm just wasting space or if the data is important to you. Best regards, Tom