PDP,
Thank you for your questions.
When you look at LEV/SEV for a specific stock, you need to put this in context.
My back-test has indeed shown that if you buy a stock whenever you see LEV increasing for three consecutive days and sell X days after, you are on average performing worst than a Buy and Hold strategy.
The reason for this is that LEV/SEV are measuring an equilibrium and not an accumulation/distribution force.
LEV will show that large players are accumulating or distributing stocks.
The question is then why are they doing this? Is it a sign that the price will follow? Is it something specific to that stock, to that sector, to the whole market?
You have basically two methods to use LEV: the first one is to use the back-tested repository file ranking/rating, which will point to the most interesting long/short candidates. The second one is to use one of the divergence filters and study each stock one by one in its context.
Let's study the two methods:
1. The repository file
The idea of the stocks list of the repository file is to rank stocks starting by the most attractive buy candidates at the top and finishing by the worst stocks at the bottom. There are three criteria used to rank the stocks:
A. The LER (Large Effective Ratio) level (Ch 1 of the VIT book.) The LER measures the LEV divided by the total volume exchanged during an analysis period (a few days). After calculation, the LER is compared to past historical accumulation/distribution and a normalized value is given between 125 and -125. 100 means that accumulation is at the level of the past strong accumulations. 125 means that accumulation is stronger than past accumulations.
B. The AB (Active Boundaries) Level. AB (Ch 2 of the VIT book.) The Active Boundaries measure the situation of a stock within its trend. the upper channel of the trend is defined by UB (Upper Boundary), while the lower channel is defined by LB (Lower Boundary). Back-test has shown that stocks that are in an uptrend (UB + LB > 0) and close to their LB have a tendency to bounce there, especially when LER is high. This basically means that big money is attracted by a pull-back while the stock is in an uptrend. The closer to LB, the stronger the AB numerical value (AB is normalized between 100 and 0.)
C. The sector strength as shown in the SIGR file of Billy.
Each of these three criteria carries a weight of 1/3 to determine the total rating of the stock. In the filter of stocks with strong ratings/ranking, I only show those that carry a total rating higher than 80. To have such a good rating is mathematically impossible if one of the three criteria is very poor.
2. Specific stock analysis
Now, let's come back to analyzing a specific stock: SU
We can see that SU is in a down trend (UB + LB = 6.91%-29.12% < 0), but close to UB (expensive)
These figures can be found in the AB sheet of the repository file.
Large players are selling, even though the whole market has been attracting money and other stocks in the sectors are somehow bought. There must be something specific with this stock
The SIGR sector analysis shows that the sector is rather poor.
The Sector MF is also rather poor, although it attracted money yesterday and issued a buy signal
Finally, The standard analysis of SU shows that the yellow resistance band seems to be a good place to initiate a short trade.