Ben,
For years I've been trying to time the market via volume. Back in 1983 I bought an IBM PC and Lotus 123 to specifically do just this. I set up this modest spreadsheet with the DJIA volume, hit the 'Calc' key, and was told I didn't have enough memory (460k) to complete the calculation. I had to go out and buy 640K of memory ($500) just to complete the calculation. As it turned out my volume indicator indicated nothing. Years later I combined the individual volume of each of the Dow 30 stocks into one volume indicator. Again the combined volume indicator indicated nothing. I slowly came to the realization that volume does not work with large cap stocks. I've assumed they don't work because of program trading, which buys and sells large cap (i.e. SP-500 companies) stocks for other reasons than their intrinsic value. For this reason when I trade individual stocks it is invariably mid-cap stocks - stocks whose volume more accurately reflects whether thay are being accumulated or distributed. For the opposite reason I avoid small and micro-cap stocks. Thay have too little volume.
So for years I was stuck with trying to time the market via volume. The market followed the large caps and the volume of the large caps was unreliable. Then I hit upon the idea of tracking the volume of the individual industries that make up the SP-500. The best industry lists I could find were the Hemscott Industry Groupings (see
http://www.hemscottdata.com/fin_database/na_hemscott_industry_group.html). But where to find volume data for the Hemscott industries? As it turned out TC-2000 software carries Hemscott industries and their volume. The SPX volume indicator that I occasionally send to this group consists of the volume of 23 Hemscott Industry Groups or Sub-Groups. These 2! 3 groups make up the nucleous of the SP-500. I'm sure I can tweak the mix of industry groupings and their individual weightings to make the indicator better, but I have gotten around to it.
I've got my computer setup to where I can quickly update my spreadsheet with Hemscott Industry data. Unfortunately the Hemscott Industry data in TC-2000 lags the actual market by 20 minutes or more. So only EOD data (> hour after the close) accurately reflects the true volume.
Lately I've been trying to time the market by giving each index component a vote (bullish = 1, bearish = -1) and adding up all the individual votes. The attached chart shows the results of such testing. For any of you who know system testing the attached spreadsheet is not very good. The equity line is not a smooth upward line. Most of the equity was made in a relatively short period of time. PLUS, I did no out of sample testing. So it is safe to say that the attached sample is somewhat curved-fitted. In its defense there is only one variable and it is profitable throughout a large range. My problem is what formula to use to say whether an individual stock is 'bullish' or 'bearish'.
I'd like to hear from any of you out there if you have ideas or suggestions. I'd be happy to share any of my findings and/or work with any of you. Unfortunately the spreadsheets are quite large (59 MB), so I'm at a loss at to how to send them out.
Pete
To: realtraders@yahoogroups.com
From: profitok@xxxxxxxxxxnet
Date: Tue, 22 Jan 2008 22:18:59 -0500
Subject: Re: [RT] One Indicator Calling Up Tomorrow
Hello Peter
this is why i stick to volume work
it has a lead time
sometime 1 day sometime a whole week
p,s
if we open gap down because of AAPL
buy the dips
low will be 1258.05 cash tomorrow
Ben
----- Original Message -----
Sent: Tuesday, January 22, 2008 10:13 PM
Subject: [RT] One Indicator Calling Up Tomorrow
My volume indicator has had a fair record in calling day ahead turns in the market. The indicator (see attached chart) says the SP-500 will be up tomorrow. On December 6 I sent out an email stating to go short in the '1491 - 1492 range'. As the second chart shows I was 3 days too early. Oh well, you win some and lose some.
Pete
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