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NYSE Percentage of New Lows and 200-Day Average Risk-Off Model

Dean Christians
2021-04-16
Let's review a TCTM Risk Warning Model component that seeks to identify weak market breadth as measured by new lows and the percentage of members above the 200-day average.

As I've stated numerous times in previous notes, new lows are a critical time series to monitor during bullish market trends. I use the series in several risk-off components within the TCTM Risk Warning Model. While it may seem redundant, I've found that I can improve my odds by casting a wide net as no single indicator will trigger at every market peak. I would also note that I have found that I can improve a model by including an additional time series with a slightly different duration. I plan to share how I use news lows and the percentage of members above the 200-day average to identify risk-off environments in today's note.

Components

1.) NYSE New Lows

2.) NYSE New Highs

3.) NYSE Common Stocks Percentage of Members above the 200-Day Moving Average

NYSE Percentage of New Lows and 200-Day Average Risk-Off Model

The NYSE percentage of new lows and 200-day average model seeks to identify instances in history when new lows are expanding, and the percentage of stocks above the 200-day moving average is low. The model will issue an alert based upon the following conditions.

Signal Criteria

Condition1 = New lows as a percentage of highs and lows cross above 79%.

Condition2 = Percentage of NYSE common stock members above the 200-day average <= 49.75%.

Condition3 = S&P 500 Index <= 4.5% from 252-Day High

Condition4 = Percentage of new lows resets below 10%. i.e., the reset screens out duplicate signals.

If Condition 1-4, signal risk-off.

Let's take a look at some charts and the historical signal performance.

Current Day Chart

Please note, I calculate performance statistics in the chart as a short signal, whereas annualized returns result from buying the S&P 500.

2015-16 Oil/Commodity Bear Market


2011 Eurozone Debt Crisis


2007-08 Financial Crisis

1998 LTCM

1990 Savings & Loan/Iraq Oil Spike


1973-74 Bretton Woods/Nixon Shock/Oil Embargo


1968-70 Bear Market

1957-58 Bear Market

1929-32 Bear Market

Signal Performance

Signal performance looks weak across several timeframes. 


Historical TCTM Risk Warning Model Table

The following table provides a historical signal perspective for components within the TCTM Risk Warning Model. A "yes" in a model column indicates that a signal triggered either before or just after a significant correction or bear market peak.

Conclusion: NYSE new lows are minimal, and the percentage of members above the 200-day average stands at a level significantly above the warning level threshold. Therefore, I would not expect a new signal in the near term.  

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Risk Disclosure: Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

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