This is an indicator posted before comparing the AD Ratio Adjusted McClellan Summation Index (RASI) against its Tick RASI. The AD and Tick RASIs are calculated, then the Tick RASI is subtracted from the AD RASI. In addition, the same approach is used with the AD and Tick EMAs (% Trends) which provide leading signals with respect to the RASI indicator. An explanation of the indicators construction is at the end of this post.
First is the COMPQ AD RASI minus Tickq RASI which has just generated a buy signal. These signals are sometimes early, and since the current signal has just occurred, it could prove to be false.
The criteria is when the indicator has declined at least 200 points, then turns up, a buy signal is generated. The current signal has met the 200 point rule, but not by an excessive amount. Since the indicator did not achieve an excessive oversold level, this is likely a shorter term signal, and not one of a major bottom.
Next is the COMPQ AD 5% trend (39 day EMA) minus the TICKQ 5% trend. These signals are typically earlier than the corresponding RASI indicator. This signal is likely of the shorter term nature since it did not violate the -100 level prior to turning up.
The NYSE AD 5% trend minus the TICK 5% trend has generated a buy signal, but again these are often early.
The NYSE AD RASI minus TICK RASI variant has not quite generated a buy signal, but its downward momentum has just about exhausted itself, and will likely turn up in the next day or two. The NYSE AD-TICK RASI indicator has achieved sufficient oversold levels for initiating a meaningful price rally.
My guess is these latest signals are signaling a bottom, but likely not an important bottom. The jury is still out on a NYSE AD-Tick RASI buy signal, but based upon this indicator's history, we can expect some level of upward price bounce very soon.
Brief Explanation of Indicator
As we are all aware, the various data vendors report, in this case, the day's closing tick numbers, i.e. -123, +123, etc. It has been awhile since I came up with the method to determine the number of stocks whose final trade were upticks or downticks, but the following is the basic logic involved.
We know the closing advances and declines, we also know the closing net tick value. A stock that advanced for the day may have gone from $10.02 to $10.01 on its final trade, thus would be classified as an advancing issue that closed on a downtick. The converse could be true for a stock in the declining column whose final trade for the day was on an uptick.
To complicate matters further, how about the stocks that were unchanged for the day, but whose final trade for the day was on an uptick or downtick. Fortunately, the NYSE and the COMPQ average at most about 5% to 7% of the total issues traded for the day as unchanged.
The known quantities are advancing stocks, declining stocks, and the closing net tick value, defined as:
Upticks - Downticks = Closing Net Tick Value (equation 1)
We could also assume
upticks + downticks = advances + declines (equation 2)
since all advances and declines for the day traded, and each issue ticked up, down, or unchanged on its final trade. The fly in the ointment with the logic is unchanged component, thus there is a non-zero probability of error with the approach. But in all endeavors, a 100% probability of perfection is unrealistic.
Therefore, we have two equations (1 & 2) and two unknowns (upticks and downticks). Applying the basic linear algebra technique of simply adding equation 1 to equation 2, yields the following solution:
2 * Upticks = Net Tick + Advances + Declines;
dividing both sides by two yields:
Upticks = (Net Tick + Advances + Declines)/2
Knowing the Uptick value allows determining the downtick value, and that is about it.