I developed my market model in order to generate high probability buy and sell signals on S&P500. These signals guide me in the marketplace and inform my long-short relative positioning. This post will discuss the breadth and technical indicators I use in the market model and how the model generated 2 major sell signals in 2018.
The model is using 2 sets of indicators: breadth and technical. Here’s the list of these indicators:
Breadth: NYSI, NASI, BPSPX, BPCOMPQ, BPFINA, SPXA50r, SPXADP
Technical: MACD Histogram, Vortex, Force, Slope, TSI
Before adding an indicator to the model, I back-tested it and made sure that its buy and sell signals produced positive returns over time. It is important to note that not every buy and / or sell signal will result in a winning trade. All of these indicators individually generate a lot of ‘false positives’. However, what I noticed is that when all of them AGREE on a new signal, the probability of a positive return increased dramatically.
Market Model In Action: 2 Sell Signals in 2018
The chart below depicts the S&P500 and the market model with 2 major sell signals generated last year. I highlighted two areas under distribution: one in October 2018 and one in December 2018. Notice that NYSI and NASI generated early sell signals in September 2018, however, the market continued to drift higher for the entire month. The market started to tank in October 2018 when the other model indicators ‘joined’ NYSI and NASI and provided their own respective sell signals.