Constructing breadth and average trend states

Keep the averages as arithmetic

A 10-period simple moving average is updated by adding the newest observation, dropping the observation from 11 periods earlier, and dividing by 10. The average’s change depends only on that newest-versus-dropped pair.

An exponential average is presented as easier to compute than a simple moving average and as giving more weight to recent observations.

Read price against one average or two

Price above a moving or exponential average is treated as a rising-trend condition. The average’s length sets whether the reading is short or long term. The crossover itself is treated as a possible buy or sell mark.

A shorter moving average above a longer one is treated as a rising long-horizon trend. The reverse alignment is treated as a falling trend. In the terms used here, that is a moving-average crossover: a trend state defined by price versus an average, or by a shorter average versus a longer one, with the lookback setting the horizon of the reading.

Stack last price with two exponential averages

One three-curve stack uses last price, a 5-week exponential average, and a 19-week exponential average. Price above the 5-week average and the 5-week average above the 19-week average is labeled bullish. The inverse stack is labeled bearish.

Count bullish and bearish members

Market breadth is a group reading built from how many issues advance, decline, or sit in a bullish versus bearish state, rather than from one price average alone.

For a watched group of stocks, the number of members classed as bullish can be compared with the number classed as bearish. Any of the discussed trend rules can label each member.

Fit a residual between price and breadth

Daily advances minus declines can be accumulated and set beside a market price average. A gap between the two series is treated as a signal that the trend may be changing.

Because a price average and a cumulative advance-decline series are not on the same scale, one construction fits a least-squares line of the price average on the advance-decline series and then reports the percentage the price average sits above or below that line. In the terms used here, that fitted line is linear regression: it relates a market price series to advance-decline statistics so the percentage gap between price and that line can be read as a divergence oscillator.

Use a short window or a three-day mark

A non-cumulative advance-decline alternative totals advances over 10 days and declines over 10 days to form an oscillator intended to make trend changes visible more quickly than a running sum.

A three-day net-advance rule places an up mark after three consecutive sessions with advances minus declines positive and a down mark after three consecutive negative sessions. The same rule is described as producing whip-saws while remaining aligned once a trend is underway.