Momentum Top Signals

Image by Kelly Denker via Flickr

I wanted to follow-up on a post over at Big Picture that had to deal with momentum tops and bottoms.  Looking over the post, I don’t quite have the programming skill to look at exactly what is being discussed, but I did think it would be interesting to take a look a simple indicator – the number of stocks, for a given index (in this case the SP-500) that are below $10.  Why $10?  Totally arbitrary.  But it produced an interesting graph that I’ve reproduced below:

The first graph is raw count with some moving averages thrown on them.  The second graph is a percentage of the total stocks in the index – and the S&P 500 is at the bottom with a 200 day MA thrown on it.

I don’t have a lot of comments on this at the moment – I’d just comment that we have now approached the same percent of stocks below $10 as near the market low in 2002.  I’m working on figuring out how it might be used in a system.

Geek note: There is survivorship bias in this chart as the SP-500 has obviously changed in terms of its members and I’m using a fixed version of the index.  Man, I wish one of the software developers would create the idea of a dynamic index that can change as the members of the index change.