2020issue C118-13
Combining money-flow, RSI, and breadth for dynamic pressure zones
A unified market composite bounds money-flow, breadth, sentiment, and price-band inputs on a zero-to-100 scale. Read against McClellan-summation position and slope, buying-pressure and selling-pressure zones move with the regime instead of sitting at fixed overbought and oversold clips.
- The unified market composite is a weighted linear mix of percent-B, an inverted equity put/call ratio, a McClellan oscillator, and money-flow index values at 50-day, 21-day, and 13-day lookbacks, then mapped with a relative-strength-index transform onto a zero-to-100 scale.
- When the McClellan summation is at zero with a flat 200-day slope, buying-pressure and selling-pressure zones split evenly at 50-100 and 0-50. A bull tilt expands the buying-pressure zone to 40-100; a bear tilt expands the selling-pressure zone to 0-60.
- Market trend for that zone sizing is judged from the slope of a moving average of the McClellan summation on the S&P 500, with a positive slope treated as a bull regime and a negative slope as a bear regime.
- In an illustrated bull-regime window, a 10-day relative-strength-index reversal through 40 was treated as an available entry condition when a wait for the conventional 20-30 oversold band would not have triggered.
Overbought and oversold as moving bands
The historical workflow presents a unified market composite, read against McClellan-summation context, as a leading framing for strength and weakness extremes. That framing is also offered as an explanation for why commonly cited overbought bands near 70-80 and oversold bands near 20-30 do not stay fixed.
Editorial: treat overbought and oversold as moving pressure bands, not fixed clip levels. Combine money-flow inputs, a bounded composite oscillator, and market-breadth context so a signal is only as strong as the regime that sized the zone.
The unified market composite
The unified market composite is specified as a linear combination of percent-B, an inverted equity put/call ratio, a McClellan oscillator, and money-flow index values at 50-day, 21-day, and 13-day lookbacks. The six coefficients assigned to those inputs are 200, 100, 2, 1.5, 3, and 3, in the order percent-B, inverted put/call, McClellan oscillator, 50-day money-flow index, 21-day money-flow index, and 13-day money-flow index.
Applying a relative-strength-index transform to the composite produces an oscillator bounded between zero and 100. That bounded reading is used to locate extremes for entry and exit study, so the same scale can be compared when the buying-pressure zone or the selling-pressure zone later changes width.
Money-flow index at three horizons
The money-flow index is constructed from typical price, high plus low plus close divided by three, times volume. That quantity is converted to an n-day positive-to-negative money-flow ratio, then mapped with the same bounded transform used for a relative-strength index.
In this mix the money-flow index is not a single clip. It enters the unified market composite at 50-day, 21-day, and 13-day lookbacks so money moving into or out of the market is represented at more than one horizon before the relative-strength-index transform bounds the whole composite.
Market breadth and the McClellan summation
Market breadth enters through advance-decline structure. The McClellan oscillator is formed by subtracting a 39-day exponential average from a 19-day exponential average of net advances minus declines. The McClellan summation adds the current oscillator value to the running total of prior values.
Market trend for zone sizing is judged from the slope of a moving average of the McClellan summation on the S&P 500. A positive slope is treated as a bull regime. A negative slope is treated as a bear regime. The summation’s level relative to zero is read together with that slope, not in isolation.
How the pressure zones resize
When the McClellan summation is at zero and the slope of its 200-day average is flat, the buying-pressure zone and the selling-pressure zone are split evenly at 50-100 and 0-50. The upper band is then the region in which buying pressure is treated as dominant. The lower band is the region in which selling pressure is treated as dominant.
When the McClellan summation is above zero with a flat-to-positive 200-day slope, the buying-pressure zone expands to 40-100. When the McClellan summation is below zero with a neutral-to-negative slope, the selling-pressure zone expands to 0-60. The floor and ceiling of each zone therefore follow breadth position and slope rather than a fixed overbought or oversold clip.
A bull-regime reversal through 40
In the illustrated bull-regime window, a faster 10-day relative-strength-index reversal through the 40 line was treated as an available entry condition. Waiting for a reversal through the conventional 20-30 oversold band would not have triggered in that window.
That study sits on the resized buying-pressure zone, not on a standalone oscillator clip. Editorial: the 40-line cross is a condition to record against the regime that widened the upper band. It is not a standing rule that 40 replaces 20-30 in every market.
All readings on this track · 13 readings
- 1988Constructing tick-weighted money flow and price divergences
- 1989Four-state money-flow-index as permission for a next-bar breakout-system
- 1989Constructing a suggest-then-confirm Money Flow Index
- 1993Five-rung money flow from signed print volume
- 1993Physics analogies for building cycle and money flow indicators
- 1994Keep a wave count as a draft until money flow and a trendline agree
- 1999Take the rectangular-base breakout from money-flow confirmation, not from a late strength average
- 2004Constructing a volume-flow rule from money flow
- 2006Classify the regime before the bar read
- 2015Constructing a bounded money-flow oscillator from range and volume
- 2016Combining RSI, moving averages, and money flow
- 2018Five-rule technical rating as a rotation filter
- 2020Combining money-flow, RSI, and breadth for dynamic pressure zones