After a several-week test period, it’s time to proclaim Market Rewind the official home of “Mrkt Metrics.” The purpose of the metric gauges is to port some of the dashboard indicators found in the nightly ETF Rewind into a real-time widget.
The metrics are simple, yet important measures of the current market environment, described as follows (calculations are delayed 15-minutes):
1. Daily Sentiment – Harkening back to my old market sentiment series of articles from nearly two years ago, this indicator tallies eight inter-market spreads as a proxy measure of inter-day market strength. My premise is that all eight spreads will fire to the positive during highly bullish days and vice versa. More on this powerful confirming indicator in future posts.
2. Short-Term Overbought/ Oversold – This oscillator is based on a very short-term, multi-day weighted Relative Strength Indicator (RSI). To be consistent with the other gauges, however, low readings represent an overbought/red state, while high readings represent an oversold/green state.
3. Market Normalcy - This indicator is based on the absolute number of standard deviations price is from its mean over an intermediate-period. Extremely low readings represent highly non-normal environments. When these are observed, smaller position sizes may be warranted, especially if you are trying to fade the current short-term directional trend.
4. Short-Term Trend – This is a very short-term z-score measure indicating current directional price momentum.
5. Intermediate-Term Trend – This is a composite score using intermediate z-scores and RSIs.
6. Long-Term Trend – A long-term z-score. Looking at all three time-frame trend indicators together should provide an excellent directional tell. And, when the intermediate- and long-term indicators swing south together, watch out for your long-term holds! By the same token, if they push their statistical limits too hard, a larger structural mean-reversion may be in the cards.
All gauges range from 0 to 100 with higher readings representing more positive states.
Missing from the full ETF Rewind dashboard are the trend versus mean-reversion environment indicators, and some other useful volatility based indicators that were a bit more difficult to easily replicate in Google Docs. Nevertheless, I hope you’ll find it a good near real-time perspective of the current market state.