If you use market breadth, then 90% days may be right up your alley. If not, it’s likely something that you’re going to want to use after reading this.

Inevitably the question always arises during an extreme move up or down about when we’re at a top of bottom. It’s natural to want to be a contrarian, but most traders don’t use the right tools to know when to go long when others are short or vice versa.

During selloffs, the term used to describe these kind of potential reversal days is “capitulation.” Basically, that’s just describes a point when those who are going to sell have sold. Or conversely in bullish situations when buyers who are going to buy have bought.

When these types of days occur, the volume and advance-decline are moving heavily in one direction. To better grasp this concept, let’s take a closer look at the indicators for achieving a 90% day.

90% Day Indicators

 In order to determine when 90% of the stocks are moving in one direction on 90% of the volume, you’ll need a few instruments to construct an indicator. Here are four indices that you’ll need to use:

• Advancing NYSE Issues (ADVN)
• Declining NYSE Issues (DECN)
• Advancing NYSE Volume (UVOL)
• Declining NYSE Volume (DVOL)

Each of these indices will tally the numbers for each of those categories. Just looking at each index individually doesn’t give you the full picture since you may not know how many stocks trade on the NYSE or how much total volume occurred that day. This is where constructing an indicator can be helpful.

For example, if the market is falling, you can determine the ratio of stocks declining compared to those advancing by taking a ratio of DECN to ADVN. If the ratio is greater than nine, you have a 90% day. That means that nine stocks are rising for every stock advancing. Similarly, if you take a ratio of DVOL to UVOL, you can compare volume. If the ratio is greater than nine, then 90% of the volume is occurring on declining stocks to advancing.

90% Day Examples

A bullish 90% day is defined as a day when 90% of the stocks are declining on 90% of the volume. A bearish 90% day is defined as a day when 90% of the stocks are advancing on 90% of the volume.

The first chart is looking at volume. The spikes above the red line are days when 90% of the volume occurred on declining stocks. The orange line is a graph of the S&P 500. Since June 11, 2020, there were five instances of 90% volume days.

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(Click on image to enlarge)

This next chart is looking at NYSE declining issues divided by advancing issues. The spikes above nine represent days where 90% of NYSE stocks were declining. There are four instances since last June where that bullish signal was given.

(Click on image to enlarge)

Putting them together, there were four dates where a 90% day was established, which provided an indication of selling capitulation. Here are the dates:

1. June 11, 2020
2. June 24, 2020
3. September 23, 2020
4. October 28, 2020

Looking at those dates to turn bullish on the market over the second half of last year would have been very fortuitous.

Conclusion

Identifying key reversal days, especially during a decline, isn’t as hard as it seems, and using 90% days may give you a leg up. While no indicator is 100%, the use of 90% days could be one of a very select set of indications that you may want to consider using to identify significant near-term bottoms to the market. Looking at today's values for these indicators shows we haven't reached a point of capitulation in the market with the selloff today.