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Strategies & Market Trends : MDA - Market Direction Analysis -- Ignore unavailable to you. Want to Upgrade?

To: TWICK who wrote (10762)	4/13/1999 2:35:00 AM
From: Stoctrash	Respond to of 99985

Added hourly Forks & Fibs to my page: homestead.com

To: TWICK who wrote (10762)	4/13/1999 2:39:00 AM
From: Wildstar	Read Replies (1) \| Respond to of 99985

Twick, I'm not sure if I know myself. I am trying to see if market breadth can be a leading indicator for movements in the indices (DJIA). The two gauges of market breadth on my website are the advance-decline line and the new highs/new lows. If one were to plot new highs versus the DJIA, one would get too "ragged" a graph because one day the new highs might be say 85 and the next might be 23, and the day after be 120. Therefore, taking the moving average of the last 25 days helps smooth out the curve. The longer time frame of the moving average, the smoother the curve, but also the less responsive. Historically in the market, whenever breadth starts to diverge from the indices, like what is happening right now, the indices soon follow. You can see this on my charts. Look at the "DJIA and New Highs" chart right around July of 98. The index (DJIA) had made a new high whereas the NH 50 day MA barely responded. This is called a divergence, meaning that the indices such as the DJIA, NAZ, etc were being carried upward by only a few stocks, whereas the "average" stock was headed down. Some of these "average" stocks were even making new 52 week lows. This can happen because the larger cap stocks have more weight in the calculation of the index. This divergence resolved once the market had a 20% correction by the end of August. A similar divergence was seen on the "DJIA and fraction New Hi's" chart during the same time period. The fraction New Hi's indicator combines both the new 52-week highs and new 52-week lows, and thus may be a better indication of market breadth than either one alone. The market has undergone a similar divergence since the beginning of February, and you can again see that on the charts. This is the reason that there have so many bears on this thread, myself included. There has been a divergence between the indices and market breadth and I would have expected a response from the indices by now. Since it hasn't happened yet, the question now becomes - Can the divergence resolve by improvements in the breadth rather than deterioration in the indices? Historically this has not been the case, but who knows. The markets have a tendency to come back and bite you in the ass when you least expect it. If the breadth were to improve at this point, you could see a powerful rally in the indices. I hope that helps. Let me know if I was unclear about anything.