Here is the 6 month chart as of the 11/18/2009 close and an explanation as to how the indicator is created If the blog does not allow the whole image to be shown just click on the image. I have yet to figure out how to expand the width of the blog.
For several years I have tried various ways to come up with a formula, equation, or chart which would help me time the market more precisely. I've tried broader index approaches and basket of stocks approaches. I've tried running regressions on fundamental and technical indicators to see if I can create an equation to help predict daily, weekly, six month, etc... performance. I could go on, but the point is I have tried several different approaches. My latest approach is the Dow % bullish indicator.
The indicator is a percent created by assigning a 1, 0, or -1 to each Dow stock, multiplying the number by the appropriate weight for each Dow stock, and then adding each Dow component's number together to create a % bullish indicator. 1 is bullish, 0 neutral, -1 bearish.
The Dow is price weighted, so the highest priced Dow stock has the highest weight in the Dow average. Currently IBM is running over 9% of the Dow. So if I would assign IBM a 1, let's say, then IBM would count in my indicator as 1 X 9% or 9%. So if all the other 29 Dow stocks were at 0, the Dow would then be 9% bullish.
I have tried to keep the assignment of bullish, bearish, or neutral as consistent as possible and to some extent as objective as possible.I would consider it objective to say a stock in an uptrend is bullish, but since there are those out there who would short a stock in an uptrend, this assignment cannot be entirely objective. So, I take things commonly referred to as bullish or bearish and just keep consistency.
Additionally, I am not looking at the longer term charts, rather I am trying to look as short term as possible. A 3 month chart might be enough to determine bullish/bearish/neutral and quite often the last 5-10 days will make the determination. I try to glance at the chart and assign the number within my first impression and outside of the first impression I try to stay within some guidelines outlined below.
Ways in which a stock might be assigned a bullish 1:
Stock is in an uptrend and is holding above the 10 day moving average without any large volume down days.
Stock has just cleared previous highs/broken out.
Stock has broken above a down trend line.
Stock has bounced off the 10, 20, 50, 200 day moving average.
Ways in which a stock might be assigned a neutral 0
A stock which was otherwise bullish has a large volume down day or a large down day which breaks the mold of the up trend.
A stock in a wedge, which often bounces back between 1, 0, and -1.
A stock riding a major moving average such as the 10, 20, 50, 200, where a break down would make it bearish and a bounce would make it bullish.
A stock in a downtrend which has an large volume up day or a day where the downtrend is broken
Ways in which a stock might be assigned a bearish -1
Stock is in an downtrend and is holding below the 10 day moving average without any large volume up days.
Stock has just cleared previous lows/broken down.
Stock has broken below an up trend line.
Stock has broken below the 10, 20, 50, 200 day moving average.
As one can tell it would be very hard to keep this completely objective, but more than anything I want the indicator to stay consistent. Not all stock patterns fit into the above criteria so sometimes it is required to make a judgement call. Perhaps 1-3 charts per day offer pause and I have to either refer to rules or make such a judgement call. The idea is to say "Well the last time this happened, the Dow did this," so subjectivity must be avoided as much as possible.
Here is a mark up I did on past inflection points.
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