Ten Day Oscillator
and Impulse Waves
I first came across this idea in Justin Mamis’s book ‘The
Nature of Risk.’ In the chapter titled ‘What the Market Says II’, Justin
introduces the reader to the ten day moving average of the net differential
between advances and declines. Now the NYSE no longer reports advances and
declines based on common stock data only (operational companies) but the
indicator works equally as well for advancing volume and declining volume, so
that’s what I use to track the indicator.
It basically works as a short-term overbought/oversold
oscillator so it measures momentum extremes in the underlying market on a short
term basis. Having said that, whenever the market has a severe sell-off that
drops the indicator to an extremely oversold condition, Mamis warns the reader
to be an the lookout for a turnaround impulse wave up that takes the indicator
to an extreme overbought state…this is an excellent tip-off that the market
will stage a strong rally off the bottom. The pullbacks that come up will tend
to be shallow with strength returning to a market surging upwards.
Well fans, this is happening right now and I’m not the only
person to notice this. Please read the link below from Jeffrey Saut who
discusses the same phenomenon on his morning tack…
Now making forecasts or trying to predict what the market will do in the future is almost always a mistake but we as investors can still take the market's temperature and in so doing gauge the amount of risk that is currently in the market...So bearing what has been discussed here in mind, the risk level of being in the market appears low when compared to the potential rewards.
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