Stan Weinstein's Stage Analysis and Market Breadth - Technical Analysis - Printable Version

Stan Weinstein's Stage Analysis and Market Breadth - Technical Analysis - Printable Version

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RE: Stan Weinstein's Stage Analysis and Market Breadth - Technical Analysis - pcabc - 2023-04-04

Looking at the sectors identified in my previous post

Smaller numbers of stocks in each sector means that some of the breadth data has visible granularity. Be aware of this. Overall though likely still interesting, even if from a limited sample.

Technology
'Price' (index) action is looking good [1]. Weinstein Momentum [4] and 1% A/D [5] are below zero but could conceivably cross above it soon. % stocks above the 20, 50 and 200 day EMAs all increasing [10, 11 & 12]. Overall looking bullish.

Consumer Staples
This is a defensive sector that people run to when other areas get too risky. No higher high nor higher lows yet [1]. % stocks above their 20, 50 and 200 day EMAs are rising. Looks like it is in Stage 1 to me.

Industrials
Positive signs in most breadth indicators, but the index itself looks like it is in Stage 3, and with recent lows of a week or two ago being lower than previous this looks like it could go into Stage 4.

Healthcare
You can clearly argue higher highs and higher lows looking at June, August, September/October, December and March. A longer timescale or 2 years (not shown) makes the 'price' [1] look more like the end point of a longer period of Stage 3 volatility. If we take August and December as highs then the Advance Decline line [2, red] is diverging negatively, but the Advancing / Declining Volume line [2, yellow] is not. % stocks about the 20, 50 and 200 day EMA are increasing. I think that we are seeing the increase in strength as there is the climb out of a low in a volatile sector - but would not like to say much more.

Materials
Again, I think this breadth is stronger as it is climbing out of a is a local (lower) low. Would not like to call this one. Maybe a longer term breadth chart would give more insight, but that is taking a while to calculate, so I likely won't do it tonight. It looks like part of a long Stage 3.

Communication Services
This had been one of the weaker sectors. 'Price' [1] now has made higher highs and lows and the 150 day MA is essentially flat and the 50 day MA slopping up strongly. Surely the 150 day MA will iminently slope up noticably. So this looks strong, especially if it breaks above 60. Breadth is generally strong, however, you could argue that the A/D line [2, red] and A/D volume line [2, yellow] are diverging downwards when comparing wit hthe August and February highs. Sample size is small.

Note on chart durations
Its getting late, so I'm not going to do it right now, but it appears that it would be beneficial to plot some of these charts on a 3 year time frame rather than my default 1 year time frame to add context from that longer period.

RE: Stan Weinstein's Stage Analysis and Market Breadth - Technical Analysis - pcabc - 2023-04-07

Is gold going to have a long-term breakout?

I think this is a question worth considering? But I don't think anyone has an answer? I've plotted a 5 year chart for GLD rather than the gold price itself as this way we get a plot of the volume on GLD which may be useful. Please ignore the spurious diagonal & horizontal green lines and the colour bars obscuring the date, the chart finishes on yesterdays data. (I must fix this, but there are other things to do).

The important thing for me here is that there are tops around 190 in 2020 and 2022. Both seemed to be climaxes with massive volume. We are nearing that point now with similar volume. So, is this another top or are we likely to get a breakout? We are getting higher highs and higher lows in the S&P500, though we might just have made a lower high in that index. So perhaps we are in Stage 1 there? If te S&P500 makes a high high people may perfer equities to gold which reduces the chance of gold breaking out?

All I think we can do is watch closely. This is important to me as I have a gold ETF and some gold and silver miner ETFs, so I need to keep an eye on this to decide whether to stay and rely on stop losses or take my (modest) profits.

RE: Stan Weinstein's Stage Analysis and Market Breadth - Technical Analysis - pcabc - 2023-04-14

Market Breadth, Plotting Breath as Percentages of Stocks in Each Stage Analysis Stage

Introduction

Following my earlier work in implementing Pring's Bottom Fisher (PBF) I've now looked at using Stage Analysis Stages as a market breadth tool. The calculations for the PBF are quite slow, and would take quite a lot of careful programming to speed up, it is not onerous to add graphs of the % of each stock in each stage.

I'm breaking the sites standard limit of 800 pixels for charts in this post, but I consider that, for this specific post it aids clarity.

Identifying the Stages

The Stages of Stage Analysis are defined in more of a descriptive than a simple mathematical manner, with entry to Stage 2 being from a breakout from Stage 1 and entry into Stage 4 on a breakdown from Stage 3. At best we can make an algorithm that identifies a reasonable approximation to the stages. Picking breakouts for humans is easier than for computers - as typically for the computer to do so we need to plot a channel (e.g. a Donchian channel) and identify a breakout from it. However, what is the approrpiate time period for the channel varies from chart to chart. I've ignored channels and used an algorithm that works something like this:

Start assuming we do not know what stage the stock is in.
If price is above a rising 150 day Simple Moving Average of price then the stock is in Stage 2.
... unless the 50 day SMA is falling, then the stock is in Stage 3.
If the price is below a falling 150 day SMA the stock is in Stage 4.
... unless the 50 day SMA is rising, then the stock is in Stage 1.
If the stock did not get picked by any of the filters above and the stock was in Stage 2 for the last data point it is now in Stage 3.
If the stock did not get picked by any of the filters above and the stock was in Stage 4 for the last data point it is now in Stage 1.

This gives a fairly good approximation in my view. I suspect it is biased towards Stages 2 & 4. The AMD chart below has a colour bar below the price plot. The colour coding is:

Stage 1 - blue
Stage 2 - green
Stage 3 - yellow
Stage 4 - red.

This is not perfect, but I suspect this is a reasonable estimate of the Stages. I could spend more time tuning the alogrithm, only for it to not work on another chart. So I suspect it is reasonable close and further adjustment is not justified.

Plotting the % Stocks in Each Stage
I'm plotting the % stocks in each stage for my approximation of the Russell 3000. My group of stocks is somewhat out of date, but I don't think this has too much of an impact on the outcome.

I've added some annotations to the chart which I can use for further discussion below, but I thought it was best to post an un-annotated version first for clarity.

Analysis of what the Stage Plots Show

A. I would not fully trust the graphs in this area as this is too near the beginnings of the data sets in my database.
B. The % Stage 2 stocks is high but starts to fall even as the S&P 500 continues to rise. This suggests fewer, higher market cap stocks are moving the index upwards.
C. We have a 'bump' of stocks moving into Stage 3 as the % Stage 2 stocks continues to fall.
D. Following slightly behind the Stage 3 bump the number of Stocks in Stage 4 starts to rise, even as the S&P500 continues to rise.
E. The area of interest here are the Stage 2 and Stage 4 graphs, the number of stocks in Stage 2 and 4 cross over here.
F. Meanwhile, near the end of this crossover region the S&P500 makes is final high before entering perhaps a brief Stage 3 followed by a definite Stage 4.
G. In this area the % Stocks in Stage 4 makes a high then drops. There is a noticeable bump in Stage 1 stocks and the number of Stocks in Stage 2 seems to at least halt its downtrend.
H. With the exception of the last couple of weeks we have (generally) higher highs and higher lows in the S&P500, a rise in the number of Stage 2 stocks and a drop in the number of Stage 4 stocks.

The most important points from the above, for me, are when the Stage 2 and Stage 4 stock percentages cross over and the strengthening of the number of stocks in Stage 2 and reduction of number Stage 4 following the S&P500 low last year.

Trendlines are also useful.

P. The % stocks in Stage 2 are all below a downward tendline which is not broken until quarter 3 last year.
Q. Similarly, an up trendline can be plotted for Stage 4 stocks.
R. & S. similarly show shorter trends that developed following the S&P hitting its bottom and appearing to have, at least for a while, higher highs and lows.
U & T. Trendlines R. & S. have more recently been broken. At present the current high is lower. Whether we have to wait for a higher high, or perhaps this is an indication things may go sideways? We may have to wait longer to see what developes.

Overall this seems like a worthwhile exercise.

RE: Stan Weinstein's Stage Analysis and Market Breadth - Technical Analysis - pcabc - 2023-04-14

Comparison of Stage plots with % Stocks above their 200 day EMA and the Gold Cross index

I'm not the first person to plot stages, others have done it before. But you don't see it often.

It is worth noting the similarities between the plot of the % stocks in Stage 2, the % stocks above the 200 day EMA and the Gold Cross Index (% stocks with their 50 day EMA above their 200 day EMA). This is unsurprising. The critical part of being in Stage 2 is is the price being above a rising long moving average. Price will generally affect the % stocks above the 200 day EMA and Gold Cross Index in a similar way. Also woth noticing that the Stage 4 plot is almost a mirror image of the Stage 2 plot. This should not be a surprise.

RE: Stan Weinstein's Stage Analysis and Market Breadth - Technical Analysis - pcabc - 2023-04-14

MACD of Stage 2 & 4

I've found that MACD signal line cross overs of the MACD of the Stage 2 and Stage 4 plots tend to align with highs and lows in the index. The chart below shows crossovers that generally align with lows in the index. The exceptions are a few cases near the high in the index. A similar exercise would work for highs by picking the opposite MACD signal line crossovers.

I did try plotting the Stages against their MAs. However, owing to the noisy nature of the unsmothed data I found that the MA had to be longer to avoid too many crossovers and this caused it to be late. The smoothing required produce a MACD seems to solve this issue.

RE: Stan Weinstein's Stage Analysis and Market Breadth - Technical Analysis - pcabc - 2023-04-15

S&P500 v Russell 3000 - redrawing recent support / resistance lines on the stages

I've redrawn the recent resistance/support for Stage 2 and Stage 4. Takeaway is, the current pattern of higher lows in the number of stocks in Stage 2 and lower highs for stocks in Stage 4 indicates that we are still bullish. On that basis we have higher to go to make another new high.

RE: Stan Weinstein's Stage Analysis and Market Breadth - Technical Analysis - isatrader - 2023-04-15

(2023-04-14, 04:52 PM)pcabc Wrote: The Stages of Stage Analysis are defined in more of a descriptive than a simple mathematical manner, with entry to Stage 2 being from a breakout from Stage 1 and entry into Stage 4 on a breakdown from Stage 3. At best we can make an algorithm that identifies a reasonable approximation to the stages. Picking breakouts for humans is easier than for computers - as typically for the computer to do so we need to plot a channel (e.g. a Donchian channel) and identify a breakout from it. However, what is the approrpiate time period for the channel varies from chart to chart. I've ignored channels and used an algorithm that works something like this...

I take it that you haven't seen the Stage Analysis Technical Attributes (SATA) indicator that I created on Tradingview, which gives a good automated guide of the Stages, and uses a scoring system based on 10 key characteristics from the method, and was expanded from my original work on the SATA concept 10 years ago when I first launched the site, when I was looking for common characteristics of the Stages.

https://www.tradingview.com/script/o8cHtWrP-Stage-Analysis-Technical-Attributes-SATA-by-stageanalysis/

This is currently being developed for the frontend on the website, since Christmas, and a new Stage Analysis screener using it with individual pages for each stock will be included with it and much more. Is going to be a great tool, and help with the forest to the trees approach and relative strength.

RE: Stan Weinstein's Stage Analysis and Market Breadth - Technical Analysis - pcabc - 2023-04-16

(2023-04-15, 09:36 PM)isatrader Wrote:
(2023-04-14, 04:52 PM)pcabc Wrote: The Stages of Stage Analysis are defined in more of a descriptive than a simple mathematical manner, with entry to Stage 2 being from a breakout from Stage 1 and entry into Stage 4 on a breakdown from Stage 3. At best we can make an algorithm that identifies a reasonable approximation to the stages. Picking breakouts for humans is easier than for computers - as typically for the computer to do so we need to plot a channel (e.g. a Donchian channel) and identify a breakout from it. However, what is the approrpiate time period for the channel varies from chart to chart. I've ignored channels and used an algorithm that works something like this...

I take it that you haven't seen the Stage Analysis Technical Attributes (SATA) indicator that I created on Tradingview, which gives a good automated guide of the Stages, and uses a scoring system based on 10 key characteristics from the method, and was expanded from my original work on the SATA concept 10 years ago when I first launched the site, when I was looking for common characteristics of the Stages.

I saw your SATA system a few years ago, I'd not picked up on your latest revision or the links to the other sites, thank you, appreciated.

Over the years I've written a number of routines to estimate stages. They seem to have fairly similar results and I think you rapidly hit a wall of diminishing returns as you add complexity to try to refine them, especially with respect to picking out Stage 1 & 3 boundaries. For breath calculations, based on each stage, you have to calculate the stage for every stock in the pool of stocks for that breadth data. Adding complexity slows it down. For the purposes that I'm calculating breadth for I think my Stage estimator is good enough.

I note I could probably speed up my coder considerably with a major re-work. However, the speed up would be when undertaking bulk calculations on historic data. I suspect this would make little difference when just updating the latest figures for the last day or two. So I'm probably better off being patient and just being patient when I'd doing bulk calculations on historic data.

I note your quote from the Tradingview article you posted:

Quote:There's no easy automated way to define the four stages, but by using a scoring system is one of the most accurate ways that we've seen, especially at the Stage 2 breakout and Stage 4 breakdown points. But it is still only a rough guide, as you still need to use your eyes to define the key levels.

Obviously it would be madness if one were to manually cross check the stage when making a breadth indicator! Not that you are suggesting that.

However, you also mentioned a screener. My screener does not rely on may stage estimation, but it does rely on various parameters including price in relation to moving averages, breakouts, volume action etc. So it is picking up the various factors in identifying a strong Stage 2 breakout. It produces a score and sorts stocks by that score. Noting that, as well as doing an overall screen it is worthwhile running screens on specific strong sectors as despite having put a lot of work into it, it sometimes gives lower scores to generally good charts.

I'm currently looking at whether the % stocks which have the Mansfield Relative Strength above the zero line and whether the zero line is rising is a useful breadth measure. These additional calculations are very slow and I'm trying to work out whether I have bugs in my code or whether this is not a very useful parameter to measure?