Below are brief descriptions of three quantitative indicators used in Weekly Price Action Lab Blog Premium Reports and Articles.
Unlike mainstream technical analysis, weekly Price Action Lab Premium Articles do no rely on classical indicators and never make references to traditional chart patterns since these have become less or even irrelevant in an algo-driven world. Instead, our weekly reports and premium articles include references to quantitative indicators we believe better model price action dynamics. Below are three examples.
The P-Dow indicator is the fraction of Dow 30 stocks with positive weekly bias. This indicator is calculated by DLPAL LS software. P-Dow indicated strong positive bias for week of March 11, 2019:
A ratio of positive to total is equal to 0.80 indicates strong position bias for the week ahead. When the ratio drops near or below 0.50, that usually indicates strong negative bias for the following week or two weeks.
PAL OB/OS indicator
PAL OB/OS indicates momentum strength. This indicator is derived from a number of momentum indicators and applies to all timeframes. PAL OB/OS in weekly timeframe indicated high probability of a correction for week of March 8, 2019. The S&P 500 fell 2.2% on that week. Below is the chart from the weekly premium report of March 3, 2019, with relevant comment.
The recent pattern in PAL OB/OS indicator is similar to the patterns before the two corrections that occurred last year. This is a typical pattern with two indicator peeks in overbought territory that denotes market attempts to escape a correction that it is often inevitable.
The Signal-To-Noise ratio for a 252-day period is often a good indicator of the strength of the market. Below is a chart from premium report for week of February 25, 2019 with relevant comment.
The 252-day signal-to-noise ratio, SNR(252), made further gains last week towards 0.05, which is the level we consider a signal of a correction bottom, but still has not challenged the high of two weeks ago. Although the signal has increased, noise has also increased in the lookback period and a clear signal of a bottom is not available yet by this indicator.
Besides the above three indicators, we also use a host of other quantitative indicators depending on circumstances and specific price action regime.
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