Monday, August 04, 2014

Using Intraday Breadth to Gauge Breakouts and Fakeouts

If you click on the chart above, you will see 15-minute bars for the ES futures contract for the day trading session, 8/4/14.  At the top of each bar is the number of stocks closing that period at day session highs.  At the bottom of each bar is the number of stocks closing that period at day session lows.  This includes all U.S. stocks (NYSE, NASDAQ, etc.) and the numbers represent new highs or lows *just for the day session*.

Notice how we opened with weakness despite being up from Friday's close.  Note also how the upside breakout from the day's range to that point (at the 13:30 ET bar) was accompanied by a meaningful expansion of new highs and contraction of new lows such that new highs now led new lows on the day.

For the remainder of the day, new highs expanded, new lows contracted, and of course new highs outnumbered new lows.  (Chart was created manually from e-Signal data).

Sometimes the market averages can move higher or lower, with the moves dominated by a relative handful of highly-weighted large cap stocks.  Other times, the market averages can move to fresh highs or lows and the broad market fully participates.  The intraday new high/new low numbers nicely capture broad market participation during moves--and were helpful in validating the midday upside breakout.

Further Reading:  Identifying Trend Days With Intraday Highs and Lows
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9 comments:

tigerjim said...

Mr. Steenbarger,
I am glad that you are posting again - I missed your insight and read you every day.

I am curious - compared to your posting style before your break - it seems that the number of 'technical' posts such as today are fewer and you have more posts related to the 'psychology' of trading - is that a conscious decision or just the way you are thinking these days?

confucius said...

Information used to be power, now information overload is becoming a very real weakness. Education and training might be one answer, learning to process all this new stuff is obviously important. But maybe that’s still asking too much. There's just too much stuff to process. The ability to filter is more important. Being a very good journalist is the new power, whether it's buying a new pair of jeans, or selecting a trade in the financial markets. Same same.

Unknown said...

Hi Dr. Steenbarger, I've been following you blog for many years, and I know you frequently talk about tracking intraday sentiment by market internal/breadth. This is not hard to do with index futures with underlying equity markets. But what about bonds and other commodities? There's no basket of securities you can monitor. There's no TICK OR TRIN you can track. Any thoughts/suggestions?

Josh Jones said...

Up until the breakout, every single bar had more stocks at lows than highs, including every bar during the hour-long consolidation until the 1:30pm breakout. So while breadth can be helpful, it can also be misleading if it gains too much focus. What do you think Dr. Brett--is there an easy way to separate the "wheat from the chaff" when it comes to information like this?

Brett Steenbarger, Ph.D. said...

Yes, Josh, new lows exceeded new highs until the breakout. Notice how new lows were drying up before the expansion of new highs helped to validate the breakout. It was that sequence of new lows drying up followed by expanding new highs that I found informative.

Brett

Brett Steenbarger, Ph.D. said...

Thanks, TigerJim. Yes, as I scan the financial blogosphere, it seems to me that psychology is where I can make the most distinctive contribution. I just don't see a lot of original psychology-specific material related to finance in the trading media.

Brett

Brett Steenbarger, Ph.D. said...

Totally agree, Confucius. Much of my filtering comes from having favorite authors and information sites and stressing those in my market preparation--

Brett

Brett Steenbarger, Ph.D. said...

Hi Unknown,

You're right; there isn't the breadth of information in bond or commodity markets that you have in the stock market. I would argue that much information in those markets can be gained, however, via forward curves and spreads.

Brett

tigerjim said...

Brett,

Thanks for responding. You are right - there is not a lot of material out there and certainly no one that posts as often as you and ties it to what is happening in the market that very day.