Introduction to S&P500 Short Term Market Breadth Analog Forecast

By Lawrence

This is a short introduction of the S&P500 Short-Term Market Breadth Analog Forecast report available in Daily Market Breadth Monitor (US Indices). I will explain what it does and how to utilize it on daily basis for swing level trade planning. It is a very unique tool for which no retail trader has ever get the chance to see this type of risk analysis models based purely on market breadth footprints.

The Model

This market breadth analog model takes into account the short term volatility, the overall trend of the daily market breadth readings and intraday breadth behaviour to find historical occurrences with the same footprint to generate its statistical report on daily basis. The focus of the model is not for precise market timing (even though you can as you will see later) but a tool for assessing risk that is often hidden from the daily price movements in the S&P500 index.

For more technical background information about the model, you can refer to my article Market Breadth Analog Forecasting Method in the series Market Breadth Primer.

The Report

To understand the report, let’s look at the following screenshot.


The report is very simple to read. Based on the unique signature of the current market breadth conditions, the historical occurrences of the same pattern is analyzed and summarized into a table.

Each row in the table describe a specific event and the likelihood that it will happen in the future based on the historical outcomes. The projections are done on 5, 10, 15 and 20 trading days from the occurrence of the signature.

Below the specific events are the summary analysis of the data.

Overall Reading tells us the nature of the historical outcomes. It can be Bullish, Mild Bullish, Neutral, Mild Bearish and Bearish.

Outlier Risk tells us that is it more likely than usual that we may experience exceptional price swings in a particular direction. The reading can be one of Buy Shock, Trend Up, Neutral, Trend Down and Sell Shock.

Utilizing The Information

The information provided by the statistics actually paints a picture of what is likely going to happen over the next 20 days. The progression of the probability for each specific event tells you if a potential change in trend may take place in 5 days interval. Using the screenshot as an example, it tells us that the downside bias is pretty strong yet in the next 5 days the overall situation is projected to be mildly bullish. This tells us that a potential short term low could be in the making.

Limitation of the Model

Since the signature is generated from short term trend of the market breadth data and the market breadth information I chose are also short term in nature, the forecast is more accurate for the near term and weaken over time. Hence it is important to track the updates to see if significant changes has happened to the forecast.

Future Development

The forecast report is still under development. I am exploring what kind of information to provide on the report to make it more useful for short term traders. The report will definitely change over time with new statistics added.

Anyone interested in providing feedback or suggestions please send them through the online suggestion form.


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