Last week and weekend some appealing trading indicators were put into the spotlights on Daneric's board (see blogroll), all of them (coincidence or not) being invented by Tom McClellan. Let's do a quick concise review and add and extra indicator.
First: HIO's 2-day ROC% as a bottom indicator
HIO is a high yield bond fund. Every time its 2-day ROC% has gone below -2 (green dashed line) and turns up, it's marked a significant stock market bottom.
Let's add some arrows for better analysis:
The arrows on the SPX-price chart mark the instances where the indicator is below -2 and has turned up again. To my opinion we see way to many signals in a downtrend, while in an uptrend bottoms are marked as frequently as they are signaled too soon. The same behavior of this indicator occurs during 2000 - 2007 (chart not shown). How about a 10-period ROC% then?
Way less signals, most bottoms are signaled at their mark or vicinity. And the "noise" during downtrends is reduced considerably. But does it outperform SPX's own ROC%-signals?
I guess the jury is still out on this one. Anyone interested in tweaking HIO's ROC% settings can download the thinkscript code posted below in the comment section.
Second: MHCAX's 19-week EMA as a liquidity indicator
Use the weekly of the
NAV of MHCAX, a mutual fund, as a proxy for liquidity. Every time the price goes below the 19-week
EMA, it indicates liquidity problems and a bear market. Returning above
that EMA signals the return of a bull market.
The (daily!) price chart depicts MHCAX and its 95-period EMA with SPX superimposed. The indicator pane shows the LiquidityMeter, which basically is a colored PPO(1,95,1) of MHCAX. Green: liquidity waxes, stocks go up. Red: liquidity wanes, stocks go down.
Jury says: guilty as charged. See the comment section for thinkscript code.
Extra: HIO:TLT as a risk ON:OFF meter
Derived from Terry Laundry's FAGIX:VUSTX complacency indicator. Whenever the ratio is above its 89-day SMA, risk is in vogue: a bullmarket. A ratio below the SMA indicates people are adopting an aversion for risk.
The composition of the RiskOmeter is similar to the LiquidityMeter: a colored PPO(1,89,1) of the HIO:TLT ratio. As proposed by Laundry a SMA is used instead of the EMA. The RiskOmeter seems to be quite a nice trend monitor. Notice the difference in behavior in downtrends against uptrends: in a bearmarket the maximum deviation is reached near the end of the trend while in a bull market the deviation maximum is registered quite soon after the trend reversal. To me there is not that much difference between these last to indicators. And again: the thinkscript code is in the comment section.
So feel free to download the indicators and do some tinkering. Enjoy!
