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[LPP]

The Breadth Dance

Here is an attempt (possibly lame) to help you understand the longer term bullish and bearish moves in the market and how the various breadth components play their part.

The big dance is about to begin (bullish up move). Some of those that showed up are the advances, the declines, the unchanged, the new highs, new lows, and the ever-present volume twins (up and down). The dance partners are always the volume pair.
As the music begins to play, there are only a few dancers on the floor-mainly the advances and primarily with the up volume. The number of dancers is good, but more show up as the evening continues.

As the evening gets underway, more and more advances start to dance, and always with the up volume. The declines, kind of a nerdy group, only dance at certain times, usually only when it is an unpopular song (short corrections).

As the evening moves on, a few of the new highs start to dance. They did not dance earlier because there have not been too many dances of late. The usual small group of the unchanged are dancing, but most are without dates and just watch from the side.
As the night continues, the advances, who have been dancing most of the night, begin to sit out a dance here and there. They are worn out. Because of that, the unchanged are starting to dance more while the declines still are not doing much dancing.

With the beginning of the last music set (topping action in the market), the sound is high; everyone is at the dance. The advances have been totally worn out and only dance now and then when a really popular song is played (short up moves). The unchanged are doing a lot of dancing, even though there just aren’t that many of them, and the declines, realizing the night is coming to an end, begin to dance more.

As the last few songs are played, the declines get a second wind and are doing most of the dancing. Most of the advances have gone home with the new highs. The new lows are still on the sidelines, but some of the declines are taking a second look at them.

As the last couple of songs are played, the only ones dancing are the declines and the new lows, both of whom are dancing with the down volume; some of the unchanged are also dancing with the new lows.

The music stops and the dance is over. On the way home (established down move) the declines do most of the driving, initially by themselves, then more and more with the down volumes, and as they get closer to home (market bottom), the declines are accompanied by the new lows. As they all approach home, the declines and the down volume are almost the only ones who are not there yet. They talk about the next dance.

Excerto do livro de Gregory L. Morris, “The Complete Guide to Market Breadth Indicators”

[LPP]

«Primeiro gráfico»

Muitas vezes tenho falado deste modelo sem contudo falar da parte de baixo da pirâmide.
Hoje é sobre essa base que vou apresentar algumas ideias.
O PSI20 é neste exemplo equiparado a um sector.


«Segundo gráfico»

Identificada a percentagem de títulos do PSI20 (tratado como um sector da industria) na qual a média móvel a 50 dias é superior à média móvel a 200 dias, o que significa, de um modo geral uma condição de sobrecomprado. O trigger é a média móvel a 20 dias weighted. É a primeira parte da análise do BREADTH MARKET, isto é, identificar os sectores que nos vão interessar.


«Terceiro gráfico»

A partir daqui o focus passa para a selecção dos títulos a "estar de olho" dentro desse sector:
1- Análise ERS, onde se identificam os títulos que estão a ganhar força ou a perder força, com base na função "Rate of Exchange".
2- Filtragem mais fina (é uma opção, mas não é necessária), para reduzir o número de títulos que passam para a fase seguinte do sistema.
Este sistema não necessita de ser mecânico, pode ser discricionário.

Foco seguinte: Suportes e Resistências...

Finalmente é esperar o "timeframe" óptimo que nos dê os sinais de entrada ou saída (o cume da pirâmide).