Stocks are sold. Is this the start of the bear market or just a long-awaited pullback?
Merchants try to predict market actions with indicators. Some metrics have been developed. Others are simple. Over time, the simple ones are more useful.
This may be surprising. Many people think that Wall Street uses sophisticated tools to earn money. This is it.
As a person we can not compete with sophisticated techniques. Therefore, daily traders tend to lose money. Wall Street companies are trading in nanoseconds, and our datasets are not able to process the information quickly.
Large Wall Street companies, however, are earning money with simple tools. Many long-term trend tracking strategies use simple ideas. And we can use the same tools for high stock market trends.
The Reduced Line
One of the tools that many large companies use is a line. The forward-looking line-up deletes the number of stocks that have been closed (reduced) by locked numbers (advances) daily.
If the market action is examined before a major downturn, the AD line has turned down before the S & P 500 turned down. This is the case with the bears market, which led to a loss of 50% or more in 1972, 1999 and 2007. This happened before the collapse of 1987 (19459002). In a bull market we expect most stocks. In the bear market most stocks have to be stopped. This is a simple idea, but as the tables show, this is an important indicator to follow.
Near the top of the market, we see less stocks up. The index rises because only a few large stocks produce profits.
In 2007, household stocks and finances were still rising, as most stocks peaked
while most stocks fell.
In 1987, dealers bought only the largest stocks for a portfolio insurance strategy. This insurance has fallen dramatically in October.
In 1972, Nifty Fifty became popular and investment managers bought only the top 50 companies
Strict buying always results in sales. This means that line A-D should be monitored for the precautionary signal of the next bear market.
The S & P 500 and Advance-Decline lines are in sync. As long as they remain in sync, the bear market is unlikely. We can return to between 5% and 10%. But this will have the chances of buying more stocks and getting ready for the next uplift.
Source by Michael Carr