90% Days: A Key To Market Capitulation

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.

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Rebecca Duncan 2 weeks ago Member's comment

Good read, thanks.