Worden has an indicator called T2108 which plots the percentage of stocks above their 40-day moving averages. In effect it works as an overbought/oversold indicator for the market. This is an indicator that Duru and I like to check when we get strong moves in the market. I was just instant messaging with him about it and we were trippin' off of how fast this bad boy is dropping. This indicator doesn't spend much time above 80 or below 20. Once those levels are hit the market usually reverses pretty quickly. It hit 19.99 today... down 26% from yesterday. The chart shows just how widespread the selling is right now:
Update: To fulfill a request left in the comments below, here's another look at T2108 with data going back to late 2000, which is all the data I can get on the chart:
Looks like it will go beyond 20. Cool chart
Could you publish the same chart with 5 ou 6 years please ?
Thank You very much...
Could you tell us what is the url to see this chart (if it is free).
Thx again :)
You have to subscribe to one of Worden's charting packages to get that indicator. There may be similar indicators available for free elsewhere but I don't know of any.
what are the stocks checked in the indicator ? DJ30 ? SP500 ?
It covers all NYSE stocks. Here's a description from Worden's site:
This next section, beginning with T2107, covers T2s that count the number of stocks on the NYSE trading above or below their moving averages. When plotted against a market index such as the S&P 500 (SP-500) or the Russell 2000 (RUT-X), you can see how the market reacted when large numbers of stocks were trading above or below their moving averages and what patterns to look for in the future.
T2107 Percentage of stocks trading ABOVE their 200-day moving average
In this T2, every stock on the NYSE is represented because (except in rare cases) stocks do not trade exactly AT their 200-day moving average. This is why there is no T2 for "Percentage of stocks trading BELOW their 200-day moving average". One quick glance at the indicator on a day when it reports a value of say 21 instantly tells you that 21 % of stocks on the NYSE are trading above and 79% are trading below their 200-day price moving average.
This is very valuable information because it�s a good general indication of whether the overall market is overbought (spike up in T2107) or oversold (spike down).
T2108 Percentage of stocks trading above their 40-day moving average
Very similar to T2107 above, but this indicator will be a little quicker moving because there is less resistance to a stock breaking out above its 40-day moving average versus its 200-day. Here again there is no complimentary T2 for stocks below their 40-day average because every NYSE stock is covered by this one T2.
(from http://www.tc2000.com/helpfiles/version_4_documentation/worden_s_market_indicators_t2s.htm )
Just a quick comment. I read your post last night about the T2108 indicator. Performed a backtest on it against the DJ-30, SP-500, and Nasdaq...looking to buy at the following open if the T2108 closed below 20.00 on a daily timeframe. Capture profits of 10% within 10 days or sell at end of 10 days. The results were mixed...around a 55% win ratio. But, if you take the logic to a weekly timeframe and if T2108 closes below 20 for the week and hold for 10 weeks...you jump up to a 77% win ratio. Of course, the limited number of data points then becomes a problem. I'll post more tonight if interested in different scenarios.
Michael Taylor
TaylorTree.com
Those are some interesting numbers. I should say though, that I don't use that indicator to trigger trades. I wonder how its numbers compare to some of the more popular oversold indicators.
I should also say that I'm not saying that anybody should rush in and buy off of this one indicator. In fact, given my trading style and the fact that the indices are usually well under their moving averages once 20 gets hit I'd be more apt to look to short rallies that to bottom fish.
Michael, yes, one should never trade soley based on just one indicator.
I guess it depends on your time frame. For the intermediate timeframe (10weeks), I would tend to disagree with your shorting rallies strategy. When looking at the points when this indicator did indeed close below 20.00 on the weeklies...the moves tended to be massive and kept surging upwards. In otherwords, the lows in the market had sticking power.
But, I didn't review the daily data close enough to tell if shorting those rallies would be better. So, from a short-term perspective (10 days)...you may indeed be right to short rallies.
I'll take a look more tonight and let you know what I find. Talking about other Worden indicators...the T2118 is my favorite from a intermediate to long-term perspective. It's my firm believe this is one of the most underrated indicators out there today.
MT
Hey Mike,
I'm a new trader doing a lot of research before picking my analysis software. I noticed you use Worden and am curious to know why you chose it over other software (such as MetaStock, etc.). Would you mind giving me your thoughts on it?
Mike
You can see similar indicators on www.stockcharts.com.
Above 200 day avg
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Above 50 day avg
$spxa50r
$nya50r
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$naa50r
Tim
Thanks Tim