Comment on Pascal's June 13 Comment of the Day

[Mike]

Market Co-Action.pptx
Pascal used the term "bipolarized" in his extensive June 13 Comment of the Day analysis. The term relating to everyone being in the same trade. In my analysis I am experimenting with a technique to gauge the herd mentality or actually measure the bipolarness of trading with an indicator I call "Co-Action". The NYSE market internals data Advancers and Decliners tells us on any particular day how many stocks went up or went down. Clearly if most go down then everybody is in that trade. The daily data stream is volatile. I run a simple 50-day moving average on the difference between percent stocks up and percent stocks down. The attached powerpoint file shows two identical charts one with arrows identifying prominent peaks in the Co-Action indicator in blue with the NASDAQ daily chart in red. The second page shows the chart with arrows now identifying market troughs with their alignment with market bottoms.
The data is biased in the positive plane as stocks generally go up more than down. The horizontal black line is a linear regression of the blue Co-Action line to attempt to divide the world up between positive and negative coaction.

I gues it is not rocket science that coaction could be existent around accelerated market moves. We have all been expecting a bounce and now that I look at the second chart (bottoming chart) I notice that it is not until now that the blue line is in position of some past bounce regions. Enough of the herd had possibly not joined the sell/short trade prior to Friday's close. Clearly there are deeper sell offs on the chart and that could happen here if we get into some forced selling (margin calls).

[Mike]

I just noticed that the charts I posted on Market Co-Action were not updated for Friday's market action. The chart below is updated. My conclusion haven't changed other than it is possible that we are seeing something similar to the May 2010 period as the Co-Action has gone more negative.

[Andrei]

Thanks Mike.

I'm quite interested in the following (see the red trend line in the chart). Does anyone have this kind of indicator going back some more years, to see what happened after we had this downtrending indicator making lower highs and lower lows in the previous instances?

[Mike]

Thanks Mike.

I'm quite interested in the following (see the red trend line in the chart). Does anyone have this kind of indicator going back some more years, to see what happened after we had this downtrending indicator making lower highs and lower lows in the previous instances?

I have not assembled the market internal data prior to my chart but I know that internet sources have it going back into the 1960's. I can't find the source right now but I bet someone here has historical market internal data.