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Stocks & Commodities V. 23:12 (18-27): Combining A/D Indicators And Volume Patterns by V. Kalitowski and A. von Stuermer

Stocks & Commodities V. 23:12 (18-27): Combining A/D Indicators And Volume Patterns by V. Kalitowski and A. von Stuermer

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Stocks & Commodities V. 23:12 (18-27): Combining A/D Indicators And Volume Patterns by V. Kalitowski and A. von Stuermer

Heres a novel approach to market timing that can forecast mid-term runs on the S&P 500.

There are certain critical advance and decline levels that serve as excellent high-reward/low-risk entry points to go long the Standard & Poors 500 for a mid-term run. We have found critical levels associated with two A/D ratios applied to the S&P 500. You can, however, use the indicators to trade any of the S&P 500 constituent stocks. We chose the S&P 500 mainly because many analysts and money managers consider it to be the best proxy for market sentiment. Our findings are based on an analysis of historical data dating back to June 1997.

ABOUT THE A/D INDICATORS

Advances and declines (AD) are well-known indicators used to gauge market strength or weakness, so armed with AD data, you can assess how strong a current trend really is. We use two specific ratios based on the advance/decline (A/D) concept:

A/D issues

A/D volume

The A/D issues ratio simply indicates whether a majority of stocks were traded at higher or lower prices relative to the close of the previous trading session. An A/D issues ratio with a large positive value indicates a strong market performance (positive market momentum), while a negative ratio represents a weak performance (negative market momentum).
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