Trading System on Advance Decline S&P 500 indicators

The following continues our prior research on this topic (read about it HERE). The period we analyzed for this article extends from October 15, 2004 to date.

Our goal was to determine the extent (magnitude) of uptrends ("recovery rallies") that follow, once the S&P 500 index has reached "critical A/D ratio" levels. Our previous research (read about it HERE) uncovered these "critical levels" as being 0.12 for the A/D issues ratio and 0.14 for the A/D volume ratio.

Table 1. Magnitude of uptrends (recovery rallies) following critical A/D issues and A/D volume ratios.

Date	Index	Critical A/D Issues Ratio	Critical A/D Volume Ratio	Magnitude of Uptrend (Recovery Rally)

10/28/2009	S&P 500	0.06	0.11	2.3%
10/1/2009	S&P 500	0.05	0.04	7.0%
9/1/2009	S&P 500	0.06	0.04	8.2%
8/17/2009	S&P 500	0.08	0.06	6.1%
7/2/2009	S&P 500	0.04	0.04	13.4%
6/22/2009	S&P 500	0.10	0.05	4.3%
6/15/2009	S&P 500	0.05	0.11	0.4%
5/13/2009	S&P 500	0.08	0.10	8.2%
3/30/2009	S&P 500	0.06	0.05	18.1%
3/2/2009	S&P 500	0.01	0.01	18.8%
2/17/2009	S&P 500	0.02	0.02	1.0%
2/10/2009	S&P 500	0.02	0.02	1.5%
1/29/2009	S&P 500	0.08	0.08	3.5%
1/20/2009	S&P 500	0.04	0.04	9.0%
1/14/2009	S&P 500	0.05	0.03	1.8%
1/9/2009	S&P 500	0.11	0.13	0.0%
12/1/2008	S&P 500	0.00	0.00	15.6%
11/20/2008	S&P 500	0.05	0.08	18.9%
11/14/2008	S&P 500	0.08	0.10	1.1%
11/12/2008	S&P 500	0.03	0.04	7.0%
11/6/2008	S&P 500	0.04	0.05	5.2%
10/22/2008	S&P 500	0.04	0.07	12.3%
10/15/2008	S&P 500	0.01	0.03	8.5%
10/9/2008	S&P 500	0.02	0.04	14.8%
10/7/2008	S&P 500	0.04	0.03	2.5%
9/29/2008	S&P 500	0.00	0.00	5.6%
9/17/2008	S&P 500	0.04	0.04	9.4%
9/15/2008	S&P 500	0.03	0.05	1.9%
9/9/2008	S&P 500	0.09	0.10	2.5%
9/4/2008	S&P 500	0.05	0.04	3.0%
8/18/2008	S&P 500	0.12	0.09	1.9%
6/26/2008	S&P 500	0.04	0.05	2.3%
6/20/2008	S&P 500	0.10	0.13	1.3%
6/11/2008	S&P 500	0.09	0.10	2.3%
6/6/2008	S&P 500	0.04	0.05	0.7%
5/7/2008	S&P 500	0.08	0.08	3.4%
4/11/2008	S&P 500	0.09	0.07	6.7%
3/14/2008	S&P 500	0.06	0.04	7.7%
3/6/2008	S&P 500	0.04	0.07	2.2%
2/29/2008	S&P 500	0.03	0.05	1.0%
2/5/2008	S&P 500	0.04	0.04	3.9%
1/17/2008	S&P 500	0.11	0.13	4.7%
1/15/2008	S&P 500	0.05	0.05	0.8%
1/4/2008	S&P 500	0.06	0.04	1.3%
12/27/2007	S&P 500	0.05	0.09	0.8%
12/11/2007	S&P 500	0.04	0.09	2.3%
11/26/2007	S&P 500	0.11	0.09	7.9%
11/7/2007	S&P 500	0.03	0.06	1.1%
11/1/2007	S&P 500	0.04	0.07	0.8%
10/19/2007	S&P 500	0.04	0.04	3.3%
9/7/2007	S&P 500	0.06	0.05	8.4%
8/28/2007	S&P 500	0.04	0.05	4.4%
8/14/2007	S&P 500	0.07	0.05	3.7%
8/3/2007	S&P 500	0.05	0.04	4.9%
7/26/2007	S&P 500	0.05	0.09	0.4%
7/24/2007	S&P 500	0.06	0.07	0.9%
6/7/2007	S&P 500	0.04	0.07	4.4%
5/10/2007	S&P 500	0.08	0.12	3.3%
3/13/2007	S&P 500	0.03	0.06	9.8%
2/27/2007	S&P 500	0.00	0.00	0.9%
11/27/2006	S&P 500	0.07	0.10	5.8%
6/12/2006	S&P 500	0.12	0.12	13.8%
6/5/2006	S&P 500	0.05	0.05	0.6%
5/17/2006	S&P 500	0.09	0.12	1.6%
1/20/2006	S&P 500	0.11	0.09	5.2%
10/5/2005	S&P 500	0.09	0.13	8.2%
8/16/2005	S&P 500	0.09	0.11	2.0%
4/13/2005	S&P 500	0.10	0.13	6.1%
1/4/2005	S&P 500	0.10	0.13	3.5%
12/7/2004	S&P 500	0.11	0.11	3.5%
8/5/2004	S&P 500	0.05	0.06	10.8%
5/17/2004	S&P 500	0.11	0.08	5.7%
4/13/2004	S&P 500	0.07	0.11	1.5%
3/22/2004	S&P 500	0.10	0.11	5.0%
9/22/2003	S&P 500	0.10	0.13	13.7%
8/5/2003	S&P 500	0.07	0.05	7.7%
6/23/2003	S&P 500	0.10	0.10	3.4%
5/19/2003	S&P 500	0.05	0.06	10.3%
3/24/2003	S&P 500	0.02	0.02	9.8%
3/10/2003	S&P 500	0.03	0.06	10.9%
3/4/2003	S&P 500	0.10	0.12	1.0%
1/24/2003	S&P 500	0.04	0.09	0.8%
12/27/2002	S&P 500	0.06	0.08	6.8%
9/19/2002	S&P 500	0.09	0.09	13.2%
9/12/2002	S&P 500	0.10	0.12	1.8%
9/3/2002	S&P 500	0.04	0.04	5.3%
8/13/2002	S&P 500	0.11	0.10	9.2%
8/5/2002	S&P 500	0.11	0.11	9.6%
7/19/2002	S&P 500	0.07	0.13	7.7%
7/2/2002	S&P 500	0.08	0.10	4.8%
6/3/2002	S&P 500	0.05	0.03	0.9%
1/29/2002	S&P 500	0.09	0.06	6.6%
9/17/2001	S&P 500	0.12	0.14	13.2%
6/14/2001	S&P 500	0.11	0.12	1.7%
4/3/2001	S&P 500	0.09	0.09	19.1%
3/12/2001	S&P 500	0.07	0.05	1.6%
4/14/2000	S&P 500	0.02	0.01	12.8%
3/23/1999	S&P 500	0.08	0.06	23.0%
8/31/1998	S&P 500	0.06	0.03	38.0%
8/27/1998	S&P 500	0.06	0.04	0.9%
8/4/1998	S&P 500	0.07	0.07	3.1%
4/27/1998	S&P 500	0.08	0.06	9.5%
1/9/1998	S&P 500	0.03	0.02	22.1%
10/27/1997	S&P 500	0.00	0.00	12.5%
10/23/1997	S&P 500	0.08	0.11	1.0%
8/15/1997	S&P 500	0.08	0.14	9.0%

Since June 1, 1997

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Table 1 above shows recent dates in 2004, where the S&P 500 index reached critical A/D ratio levels (as defined in the first paragraph). The table also shows the magnitude of the ensuing recovery rallies that followed. To calculate the magnitude of each recovery rally, we simply compared the highest index level that was reached in a particular rally with the index level (on a closing basis) on the day the (lowest) critical A/D ratios were reached.

Performing this simple calculation for a number of instances, where the S&P 500 index fell to critical A/D ratio levels, provides a general idea of the strength (magnitude) of such recovery rallies. For instance, after reaching critical A/D ratio levels on March 22, 2004, the S&P 500 recovered by 5%.

In Table 2 below, we took the same concept as above, but applied it to the most recent recovery rally in the S&P 500. Because it will be updated daily, this table will allow you to follow the index's progress since hitting its most recent critical A/D ratio levels, which were reached on September 22, 2004.

Conclusion: Our research has revealed that (based on a limited number of recent occurrences since October 15, 2004), the S&P 500 index has recovered by an average of 4 - 5% after hitting critical A/D ratio levels.