My before post took a await at marketplace line as well as momentum every bit a elementary business office of where the stock marketplace closed on the day: nearer to its daily high or depression price. As mentioned inward the post, that was but a start approximation of a workable measure.
Now let's endeavour something a piddling to a greater extent than nuanced. We volition evaluate whether the S&P 500 Index (SPY) closes higher upwardly or below diverse pivot-derived benchmarks: the pin cost (an approximation of the previous day's average trading price) as well as R1/R2/R3 as well as S1/S2/S3 cost targets higher upwardly as well as below the pin respectively.
As I convey defined these cost target levels, the marketplace since 2000 has a 70% jeopardy of hitting either R1 or S1; a 50% jeopardy of touching R2 or S2; as well as a 33% jeopardy of reaching R3 or S3. Because these targets are defined every bit a business office of recent volatility, the odds of hitting the targets stay relatively constant across periods of high as well as depression marketplace movement.
If the marketplace closes higher upwardly or below the prior day's pivot, that merits a score of +1 or -1. If the marketplace closes higher upwardly R1 or below S1, nosotros give the marketplace a score of +2 or -2. If the marketplace closes higher upwardly R2 or below S2, it receives a score of +3 or -3. Finally, if nosotros closed higher upwardly R3 or below S3, the marketplace is scored +4 or -4. We volition telephone band those scores the "Strength" of the marketplace day. Charted higher upwardly is the 20-day moving average of Strength vs. SPY going dorsum to 2007.
We tin run into that Strength acts every bit a form of overbought/oversold measure; banknote how across bull as well as behave markets, nosotros run into lower peaks every bit markets overstep as well as higher bottoms every bit they bottom. We're directly seeing to a greater extent than Strength than at whatever betoken since August, 2008.
The argue I similar Strength over the before mensurate is that it gives a marketplace additional points if volatility is high inward the direction of the marketplace move. Note that, to teach points, a marketplace must *close* higher upwardly the targets, non only hitting the targets. That agency that the potent twenty-four threescore minutes catamenia must complete relatively strong, as well as the weak twenty-four threescore minutes catamenia must complete relatively weak.
It may good endure that a 20-day moving average is non the best purpose for this indicator. Looking at a fresh variation volition endure the side past times side postal service inward this series.
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