The net of advancing issues, (vs the total issues on the index), is sometimes said to be useful in predicting trend changes on the Nasdaq COMP. To test this assertion, I decided to create some charts, using data from Nasdaq. The problem though is that the number of issues on the Naz keeps dropping as the Bear grinds on, thus making longer-term comparisons suspect. I decided, therefore, to chart the difference between Percentage of Net Advancing Issues and the Percentage of Net Declining Issues.
[Note: I titled this post USING % NET ADVANCING ISSUES TO FIND BOTTOMS/TOPS, rather than Using the Difference between Percentage of Net Advancing Issues and the Percentage of Net Declining Issues TO FIND BOTTOMS/TOPS because the latter is more than the eight words iHub allows for a title. {g/ng}
{Caveat: I'm not sure I'm explaining this correctly, and I'm not really even sure I did the math right, as Stat 1 was a long time ago. If anybody spots flaws in my procedures, please let me know.}
2. Next, I used Excel to figure the Net advancers for the years 2001 and 2002. (Unfortunately, the data that Nasdaq offers is spotty in coverage, and the "unchanged" issues data is not available from the year 2000, which is why I only went back through 2001.)
3. I then reformatted the results into percentages, and used Excel's "Insert Chart" function to create these charts.
What is on these charts?
-- All of the charts include the Nasdaq daily close figures for the period in question.
-- The first chart overlays each day's net advancers. This chart is extremely "spikey," so I did a bit more work with the info and created several more charts. The remaining charts show the COMP closing numbers with a moving average of Net Advancers superimposed over it. To keep things simple, (not to mention readable), each chart shows only a single moving average. The moving averages covered, in order of appearance, are 5, 8, 13, and 21 days long.
The $64,000 Question:
What do these charts tell us about the direction of the COMP over the next few days/weeks/months?
In the near-term, i.e., this coming week, these charts seem to indicate a correction is coming very soon.
Over a longer term, however, comparing these charts to the patterns they drew during the April 2000 and post 9/11/2001 rallies seems to hint that this rally is not as dead as many, (including yours truly), have been assuming.
Note: These charts may be rather large, depending on your screen size and/or resolution, but I think the size is necessary if one is to make any sense out of all the squiggles.
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