As of 04/25/2024   Indus: 38,086 -375.12 -1.0%     Trans: 15,297 +219.09 +1.5%     Utils: 895 +1.83 +0.2%     Nasdaq: 15,612 -100.99 -0.6%     S&P 500: 5,048 -23.21 -0.5%	YTD  +1.1%   -3.8%    +1.5%    +4.0%    +5.8%	Targets    Overview: 04/12/2024     39,800 or 37,150 by 05/01/2024   16,200 or 15,000 by 05/01/2024   885 or 850 by 05/01/2024   16,700 or 15,800 by 05/01/2024   5,250 or 5,025 by 05/01/2024
Chart Pattern Indicator: on 4/23/24

As of 04/25/2024   Indus: 38,086 -375.12 -1.0%     Trans: 15,297 +219.09 +1.5%     Utils: 895 +1.83 +0.2%     Nasdaq: 15,612 -100.99 -0.6%     S&P 500: 5,048 -23.21 -0.5%	YTD  +1.1%   -3.8%    +1.5%    +4.0%    +5.8%
Targets    Overview: 04/12/2024     39,800 or 37,150 by 05/01/2024   16,200 or 15,000 by 05/01/2024   885 or 850 by 05/01/2024   16,700 or 15,800 by 05/01/2024   5,250 or 5,025 by 05/01/2024
Chart Pattern Indicator: on 4/23/24

Bulkowski's Percent-Down Indicator

Sometimes research does not yield the results you expect or hope. That is what happened with the percent-down indicator.

This article discusses an indicator that tabulates how many stocks are 25% below their 12-month high. If a large number of stocks are off their highs, it is bearish.

However, the indicator doesn't work, and yet it does indicate how long bullish or bearish trends will last.

• Results
• Methodology
• Bear Market Approaching?
• See Also.

Percent-Down: Results

First, let me say that this indicator does not work. I could not find any predictive value in the results.

The above chart shows what I found. The pink line is the S&P 500 index. The black like is a percentage of the number of stocks down from their 12-month highs by at least 25%.

Notice that as the black line gets taller (more stocks below their 12-month highs), the index falls. This is expected.

In the depths of the bear market of 2000-2002 and 2007-2009 (shown highlighted), the indicator tends to spike upward.

What I did notice, but is not as evident on this chart, is that the peaks tend to group in cycles. I show that by the green-blue horizontal lines on the x-axis. After the 1990s, the periods of peaks is approximately the same width. Whether this trend will continue is anyone's guess. If it does, it suggests (as of this 11/11/15 writing) the next weakness should start within a year.

Percent-Down: Methodology

Let me first explain how dumb this indicator is.

I wondered if there was an indicator that would tell when to sell a long term holding. I thought that maybe counting how many stocks down from their yearly high would signal market weakness. It does, but when it signals weakness, that weakness is already here. It's like saying it is going to rain in the middle of a rain storm.

Plus, the weakness might not be lasting. A dip in the market can trigger a lot of stocks to tumble 25% below the 12-month high.

The S&P 500 index is composed of 500 stocks. The percent-down indicator uses from 210 (in the early 1990s) to 471 (recent) stocks, so it is like charting the index. The indicator stocks may or may not be part of the index (I did not check).

I counted the number of stocks each week that closed at least 25% down from their 12-month high. I plotted the results as a percentage of all stocks measured that week (some may not have traded), giving the indicator.

I tried various percentages down from the high: 10%, 20%, 25% and 50%. The 10% graph was too noisy and the 50% was too flat. The 25% seemed to be a good compromise. It was a bit clearer than the 20% test.

As the chart at the top of this page shows, I ran the indicator over the 25 year period from 1990 to 2015. That encompassed 2 bear markets (highlighted in the chart).

Percent-Down: Bear Market Approaching?

The only interesting thing I found is the cycle pattern. The indicator seems to have a duration of about 4-5 years (that is the approximate width of the peaks that rise above 40%).

See the above chart.

The bands suggest sustained weakness is approaching in the markets and it could hit sometime within the next 12 months (since the cycles last 4-5 years and the last one ended in 2012.

It has been my experience that as soon as you depend on a cycle repeating, it stops working. That could be the case here. Look at the 1990s. There were no sustained cycles during that period until 1998. That elongated cycle could happen again.

-- Thomas Bulkowski

See Also

• Price trends. Price trends over the last year helps make buying stocks easier.
• Best buy months. Can buying at the end of the worst performing month and selling at the best performing be profitable?
• Seasonality. What are the best months to buy and sell stocks?
• Best buy days. Which day of the week is the best one to buy or sell?
• Market & stock trends. Buy in a downtrend, sell on the uptrend.
• Price stages. Does Stan Weinstein's four stages work? Yes!
• Failures. Which months show the most failures?
• Failure rates. Chart patterns fail more often than before.

 

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