Mechanical Signal Analysis


At DecisionPoint we track the status of short-term and long-term mechanical signals so that we can get an idea of the level of participation in each of those time frames. The chart below shows the shorter-term Percentage of PMO Crossover BUY Signals as well as the longer-term Percent Buy Index (PBI) for the stocks in the S&P 500 Index. (The PBI is based upon our Price Momentum Model.)

We can see that the PMO model is a lot more active and that it ranges between extremes of overbought and oversold conditions fairly regularly. Also, when the indicator reaches one extreme or the other, that is a pretty reliable indication that a short-term price reversal is likely. Most recently it reflected 90% of PMO BUY signals, just as the market attempted to reach record highs. The resulting price pullback was not unexpected.

By comparison, the PBI showed that only about 64% of S&P 500 stocks were on BUY signals at the recent price top, reflecting considerable weakness in the longer-term time frame. Notice also that the PBI has been making lower highs for over a year.

CONCLUSION:  While the market has been bumping along around new highs for many months, the PBI shows that fewer and fewer individual stocks are participating on a longer-term basis. This means that the price index is being increasingly supported by large-cap stocks, while smaller-cap stocks in the index are losing ground. As long as this condition continues, still lower prices are likely.

Technical analysis is a windsock, not a crystal ball.

Carl Swenlin
About the author: is a veteran technical analyst who has been actively engaged in market analysis since 1981. A pioneer in the creation of online technical resources, he was president and founder of, one of the premier market timing and technical analysis websites on the web. DecisionPoint specializes in stock market indicators and charting. Since DecisionPoint merged with in 2013, Carl has served a consulting technical analyst and blog contributor. Learn More
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