The Composite Help indicator (orange line) is a reliable leading market indicator that examines every stock in a market. When it crosses above zero bullish prices tend to follow and a cross down over zero is bearish, states Ian Murphy of MurphyTrading.com.
However, after the crossover, the ‘follow-up’ strength of the move can be just as important. Look at how the bullish rally on the S&P 500 (SPX) in January drove the Composite above 5%, then 10% and 15% (black circle). Now look at the recent rally which began in March (pink circle), and note how the Composite never even made it to 5% and has crossed back below zero again. The recent rally almost reached the same height but not all stocks are participating—this is a bearish signal!
Make sure stops are in place and positions are correctly sized—scale out where possible.
Learn more about Ian Murphy at MurphyTrading.com.
