Build the market clock before you read a price bar

Build the clock before the bar

The archive does not begin with a price bar. It first asks whether advancing issues are receiving their share of trading, then redraws each session so share count replaces calendar time, and only then lets a short moving average leave a band around a longer average.

Editorial reading: keep that construction order. A short-horizon band exit is a timing condition. It is not permission to fade the higher-horizon trend.

Start with the Arms index

In 1967 the breadth-volume index was assembled from four quote-machine fields: advances, declines, advancing volume, and declining volume. The assembly tests breadth-volume share, whether advancing or declining issues are attracting more than a proportionate amount of total volume.

The index is advances over declines, divided by advancing volume over declining volume. A print of 1.00 is a standoff. Readings below 1.00 assign extra volume to advancing issues. Readings above 1.00 assign extra volume to declining issues. Speed and direction of change are ranked above the absolute print.

That construction is the Arms index: a market-breadth measure that divides the advance-to-decline count by the ratio of advancing volume to declining volume and asks whether rising issues are receiving a proportionate share of trading.

Split the same index by horizon

The same index is then split by horizon with moving averages. A 21/55 crossover stands for the long term. The 21-day and 10-day averages stand for the intermediate term. A 4-day average is reserved for short-term timing.

A short-term band is built by multiplying a 13-day moving average of the daily index by 1.15 and 0.85. A buy or sell condition is defined only when the 4-day average of the index moves outside that 15 percent envelope.

On the 55-day moving average of the index, a reading near 1.10 or 110 is labeled very oversold and the high 80s are labeled very overbought. The 96-98 zone is used as a mid-scale reference for a less extreme long-horizon state.

A 4-day overbought reading is not used to fade an established uptrend. Any decline in that setting is treated as likely to stay limited while the major trend remains up.

Replace clock time with an Equivolume box

Each session is drawn as an Equivolume box with the high at the top, the low at the bottom, and volume as width. A tall thin box records wide range on light volume. A short wide box records narrow range on heavy volume. Box shape is the visual record of how much range was bought or sold per unit of volume.

Because the horizontal axis is share volume rather than clock time, turning points are measured as volume distances. That interval is a volume cycle: a measured interval of share turnover between successive highs or lows, used in place of a calendar interval because no trade means no market event. The market-level cycle discussed had grown from about 8 billion shares to about 40 billion shares and was then completing in less than a year.

Screen names, then rank ease of movement

Issue selection is confined to a 500-name universe and a daily screen for volume that is large relative to price change. About three or four names typically flag each day. After discarding those with an obvious news explanation, about one or two names a week retain the sought price-volume profile.

Ease of movement is the session midpoint change divided by the box ratio, then converted to an oscillator with a 13-day moving average. The box ratio is volume units for one session divided by range units for the same session, the denominator that turns a price midpoint change into an ease-of-movement value so issues at different price levels can be ranked on one scale. Daily charts use the zero-line cross. Longer multi-day charts use extremes because of lag.