This is the set of tools I use each weekend to assess the status of the stock market for my own trading, for divergence-alerts.com, and for demonstration at the MoneyShow and Traders Expo. Here is a sample video using this toolset for divergence-alerts.com Platinum customers: Click Here to View Sept 27, 2013 Market Status Video
The package includes a TradeStation Desktop with tabs for 6 workspaces charts for the various indicators I use. It also comes with Easy Language modules to implement the McClellan Summation Index and the McClellan Oscillator in TradeStation. TradeStation itself and my MACD Divergence Detector modules are not included.
What follows is a detailed description of each workspace tab:
Market Index Divergence Charts
Use this to quickly flip through the main market indices using their trade-able ETFs as a proxy. The rightmost pane is the list of tickers. Click each one to bring it up on the charts. The charts represent different timeframes — e.g., daily, weekly. Plotted on each chart, along with price, are 2 critical moving averages, the 50-day and the 200-day, plus the MACD indicator.
To get the most of this workspace, you need theMACD Divergence Detector software package which is sold separately. It flags the divergences with a “ShowMe” circle above the price.
The top plot in green is the SPY for the S&P500 index. The bottom plot in brown is the VIX for the S&P500. VIX is said to be a contrarian indicator: once it goes low to an extreme of complacency it signals a pullback. As the market drops, the VIX tends to soar. At some peak of fear, the pullback/correction/bear run ends.
Actually, this workspace contains plots for the VXN for NASDAQ(QQQ) and the RVX for the Russell 2000 Small Cap (IWM) but the SPY vs VIX plot is the one I use regularly.
Breadth and McClellan Summation Index Charts
This workspace builds breadth indicators from the bottom up. The bright yellow like at the base of it all is the Advance-Decline line. Above that in orange is the McClellan Oscillator. Its two green lines demarcate oversold and overbought, in the typical manner.
The blue line is the McClellan Summation Index. Watch this one for divergences with price in the form of SPY (Top plot). This screenshot illustrates a bit of a negative divergence because the new high in price was not confirmed by the McClellan Summation Index. This carries bearish overtones, although the timing may be rough.
Yield Spread Charts
The fundamental assumption behind this chart is that the bond market is smarter than the stock market. During a so-called “flight to safety”, corporate bonds sell off and treasury bonds get bought up. In the past, this has happened just before major stock market sell-offs.
At the top of the chart, SPY is plotted for easy reference. The corporate bonds are represented by the orange line — a price plot of LQD. The treasury bonds are represented by the aqua line — a price plot of IEF. Both LQD and IEF are bond funds of similar duration of about 7 years.
The yellow line at the bottom of this chart is the indicator. I think of it as a canary in a coal mine. It is the difference between the LQD and IEF prices. When it drops HARD, it spells eminent danger for the stock market. Minor moves happen all the time and don’t count for much. Beware a major drop in the yellow line.
New Highs / New Lows Chart
MACD Divergence Charts
This workspace needs theMACD Divergence Detector software package which is sold separately.
This workspace is very similar to the Index Status workspace in the first tab except that it has a place for you to copy in tickers to check individual stocks and ETFs for divergences and other interesting conditions.
Requires TradeStation 9.0 or higher – sold separately
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