ADL Big Picture - 21 April 2009
Putting out some interesting manipulation of ADL today. I mentioned few days ago that I am going to use Rate of Change (ROC) for ADL. I was hoping to find some trend on accumulation and distribution stage by using this method. You can try to see what you can see from the trend, I highlighted some high and low points of modified Rate of Change (mROC(5days)) above. The mROC is following the primary axis on the left of the chart.
Please note that the way I am using ROC is slightly different from usual Technical Analysis text book. Due to the limitation of Axes in my chart I can't use multiplier of 100 like normal ROC. I had to use multiplier of 200000 so that the lines are spreaded evenly in my chart.
My thoughts, I am quite lost when I added mROC into the chart. However, after I viewed my Big Picture ADL chart, voila! The scatter plots show me something interesting. You can refer to my Big Picture ADL (from the start of STI Breadth collection till present) below.
It is quite scary that mROC for red area (which is before last year Bear Rally) is "radical" and "active". It somehow explains something to me. The trading pattern before Bear Rally was High and Low and direction of ADL changes a lot. That's why you will see positive and negative mROC flowing around at bigger spread.
Then comes orange area (which is after last year Bear Rally). Look at the mROC convergences together when comparing with red area. This suggests the trading pattern changes and ADL goes one way down to Oct 2008.
Interestingly the mROC for green area (after Oct 2008), started to convergent more and more until just recently they are "lumping" together into one big spot. Even though it is very early for me to say something now, I see change of trading pattern. Yes, you bet it. You want to know whether bottom had over right? I can't really say anything but it is an interesting finding ever since I started to collect STI Breadth. First I found ADL can be coupled together with Moving Average (MA) then now that I found that it is even more interesting to couple with ROC.
