Index cycle gates from breadth and volume

How cycles are outlined

Cycles in a broad industrial average or other major index can be outlined by combining volume series, new-high and new-low series, and the advance-decline line. The advance-decline line is a running net of advancing versus declining issues used to test whether index highs are still confirmed by participation.

In the archive workflow, a new-low series was used to mark five complete cycles in a major industrial average between 12 November 1987 and 30 January 1990. That series is the new-low indicator: a breadth count of issues making new lows, used to mark cycle boundaries and to test reversals around a fixed reading.

Reading proposed troughs

Proposed cycle troughs are read from downside volume, the volume-percentage ratio, and the new-low series recovering from their lows. Downside volume emphasizes selling activity and is read near those proposed troughs. The new-low series is described as following shortly after the two volume measures.

Reading proposed peaks

Proposed cycle peaks are read from the volume-percentage ratio, a new-high series, and the advance-decline line. The new-high series is the new-high indicator: a breadth count of issues making new highs, used to check whether price peaks are confirmed. At those peaks the new-low series is expected to sit near 0.

As a peak approaches, the volume-percentage ratio and new-high series can stop confirming new index highs, the new-low series can leave its peak, and the advance-decline line can weaken. The final high is often unconfirmed by all three. Missing cycle confirmation, when the index and the matching breadth or volume series no longer agree, is treated as a reason to doubt that the current price move will continue.

A short-horizon volume check

The volume-percentage ratio is a short-horizon mix of volume. It is treated as a check over 50 to 75 trading days, not as a long-horizon cycle measure.

A fixed new-low reading

A new-low reading of 10 or higher is treated as a sign that a sizable reversal is near. A reading above 10 that the index then crosses is treated as an upward reversal cue, after which a decline often follows as an overbought condition eases.

The first rebound after a peak

After the first drop from a peak, a rebound that is not joined by rising upside volume is treated as unconfirmed and likely to fail, even when other series turn positive and look like a new cycle low. Upside volume emphasizes buying activity and is used to test whether that rebound is confirmed.