One of the sites I check weekly
dashofinsight.com linked today to a study commenting that this looked like a good buying opportunity based on the HILO Breadth Index:
recessionalert.com/once-in-a-year-opportunity.
"We have spend the better part of a decade in the search for the ultimate indicator for the stock markets. Whilst it became clear early on in this quest that no one indicator would work all the time and every time, there are a few that stand out from the rest. One of them is our HILO Breadth Index which we introduce in this research note. Apart from a multi-decade track record, the HILO index is very adept at warning in advance of protracted corrections/bear markets and for pinpointing market bottoms with very few false positives. This trifecta of features rarely occupy the same podium on most indicators."
Not sure I quite understand how this indicator is constructed. It would seem impossible to me that the %13-week high would ever be below the %52-week high. If anyone has an enlightening explanation on this it would appreciated. Also interesting to see an alternative viewpoint after the
a 60% correction ahead discussion.
Comments
Even otherwise, I think it could mean high reached in the past 52 weeks. Say On 1/1/14 price was $100, On 10/1/2014 it is $40, then 1/1/2015 it is $70.
Their HiLo Breadth Index is merely the number of net new 13 week highs (new highs minus new lows) less the number of net new 52 week highs (again new highs minus new lows). Apparently they use some smoothing mechanisms that are the proprietary part of the model and it gets them to a system that provides leading indicators for both positive and negative directions of the S&P 500.
I certainly don't have any real data to back up my opinion, so take it with a grain of salt, but if I had discovered a reliable indicator of the direction for the S&P 500, I would be trading S&P futures contracts, getting rich and telling NO ONE about my model. The fact that this is included on a website that charges $400 for an annual subscription and does a lot of additional work each month to capture, summarize and report on lots of data suggests that the profit potential from the website was greater than the potential from keeping the indicator a secret and trading on it, or even selling it at a high price directly to someone with the liquidity to make huge money from it.
Maybe I have the economics screwed up somewhere and misunderstand the opportunities to maximize profits. Maybe there's less risk in a research service than there is in trading, or the risk of loss when the indicator doesn't do a good job is so high, that its just better to take the safe route. Many people are far more risk averse than I am so maybe my way of looking at things is just too risky, but that's what I wonder when anyone is selling their "great" indicator.
It wasn't something I was interested in subscribing to, but I've been ruminating about the 10-month sma indicator in general after reading timing method performance over ten decades from @Charles and then a Rithotlz and Faber discussion of the same: Re-Entry Signals Following 10 Month Moving Average Exit Never was able to find a followup to that blog post (maybe because they decided keeping it to themselves was more profitable?). If this was a useful way to determine a reentry point that was interesting to me.
I figure all the relevant data is available from FRED or a similar open source at a fairly insignificant lag. Still determining if it is worth finding though, but first I needed to know exactly what data was required to build/model it.
If you folks keep asking about the merits of various technical trading schemes, I fear I’ll displace Ted as MFO’s resident curmudgeon. No, that’ll never happen, but I suppose there is ample room for multiple curmudgeons on this Board.
I’ll start by reposting the wise observation made by the gatekeeper of the Decision Moose website, William Dirlam. He said: “Market timing is unproven”.
The assertions, the claims, and the technical promises rise to tsunami level, but the evidence is sparse and unsettled.
Shades of Norm Fosback, the referenced HiLo Breath Indicator is nothing more than another version of a momentum method. Way back in the 1960s Fosback touted the virtues of his High Low Logic Index (HLLI). These technical signal generators never seem to disappear completely, but they do survive in slightly modified formats.
At best, these indicators are shaky science, executed in a less than rigorous manner. Many smack from over-fitting data with limited out-of-sample testing. I believe the infamous Hindenburg Omen (HO) analysis pattern evolved from some of Fosback’s work with HLLI. As the original HO formulation proved inadequate, extra terms were incrementally added to better accommodate the newer data sets.
That’s why, although technical analyses are based on a relatively few fundamental concepts, over 8,000 technical methods exist today. I suppose Dwaine Van Vuuren’s HiLo Breath Indicator makes the count 8,001 for now.
I admit that I only briefly examined the Van Vuuren formulation. I was singularly unimpressed. It’s a minor rework of old oscillator ideas. From my perspective, its documentation raises far more questions than it answers. Here is an incomplete set of pertinent questions.
Why deal with 13 week and 52 week averages? Why not other timeframes like 39 weeks and 4 weeks? The chosen timeframes are purely arbitrary and do not capture random intermediate market events.
What is the measure of success of the method? Objective success/failure criteria and timeframe specification were entirely omitted, Without these specified, the forecasting capability of the method shares many characteristics with a common fortuneteller. Make the projections broad enough without a timetable, and some will definitely bear fruit.
Why is the data smoothing technique proprietary? I suspect it is exponential much like what Norm Fosback advocated decades ago. Typically, data smoothing is not proprietary since it is simply a mathematical procedure. I don’t like secrets of this nature.
Further, by changing the smoothing period to HiLo Fast, the mathematical technique changed potential entry and exit points. So, the mathematical manipulations play a major role to determine the decision process, and not the market itself. I don’t trust any method that is sensitive to the mathematical smoothing operation, especially one that is proprietary.
Please access the report that is the basis for the referenced article. Note the HiLo Diffusion Index which is based on a 5-criteria pecking order. The higher the total number, the more bullish is the signal. Over the last 10-year period, observe the number of times this signal was at zero (bearish) and at five (bullish). If these signals were obediently and slavishly followed, its practical application would have resulted in numerous trades, many of which were false signals. Buyer beware since an accurate scorecard was not presented.
Mathematics is a wonderful tool, but it can never predict the future.
One technical analyst used Fourier Analysis methods to project future price movements. Since Fourier analysis can use an infinite series of sine and cosine terms, it can precisely be forced to match past price movements with the inclusion of enough terms in the infinite series. To my knowledge, even that sophisticated method fails to accurately predict future price movements. Mathematics has its limitations. Don’t be a victim of the perceived accuracy in the numbers quoted.
I am not totally against technical analysis. But in its application, a user must be familiar with its assumptions and shortcomings. I trust some technical practitioners more than others. I particularly like Jim Stack in this arena. He runs InvesTech Research with a safety first philosophy and relies heavily on technical analyses. Here is a Link to his website:
https://www.investech.com/
All these advisors have their own set of technical tools. None of them are perfect, or even near perfect. Some advisors are more honest than others, especially when keeping score.
I hope my posting is helpful. Market timing is not the final answer to market rewards given the thousands of schemes proposed. I see no evidence that the referenced method has solved the market's mystery.
Best Regards.
Have to ask you though regarding your question of whether this has solved the market's mystery, are you focusing overmuch on the perfect at the expense of the good enough?