What my number one market indicator is saying
I don’t have much to say
about the market today. I’ve focused quite a bit on it in recent
columns and nothing has changed. There is a lot out there that worries me. In
fact, I can’t recall an uptrend that I’ve liked so little in about 6 years. Bias
remains long but extremely cautious.
My last column each month typically focuses on my market outlook. I review many
of the market indicators I look at and discuss what I am seeing. Sometimes after
this column appears I get questions on the UUWNHI (Unofficial, Unscientific,
Working/Not working Hanna Indicator). After receiving a question on it recently,
I realized I hadn’t discussed in any great detail in the column in a long time.
So here goes.
The idea behind the UUWNHI is simple. My trading involves multiple strategies,
both long and short, using different time frames and methods. Some of these
correlate to each other. Others don’t. The UUWNHI attempts to look at the
strategies I employ to see what is working best for me and what is not working
well. This allows me to focus my energy on those strategies that are recently
working well.
Of all the market indicators I use, I consider the UUWNHI to be my #1. Most of
my trading is in individual issues, so while index performance is a good
indicator of strength or weakness in the market, it doesn’t always correlate to
my trading. I don’t necessarily make money when the indices are up and I don’t
necessarily lose money when they’re down. Therefore, what is more important to
me than where the market averages are going is: “How is the action within the
market, and what does that mean for my trades?†The UUWNHI is my way of
measuring just that.
One question I sometimes get is: How far back do I looking when judging the
working/not working indicator?
I typically look back over the course of the last 1-3 weeks for my purposes.
This could differ depending on your trading style. When considering the UUNWHI I
weight the recent action more heavily than those trades that took place 10 days
ago. If you were to think of the UUNWHI as a moving average, it would be an
exponential moving average, rather than simple. This allows me to make
adjustments quicker.
I would encourage all traders to consistently monitor what’s working and not
working in their own trading so that they may better evaluate the market action
as it relates to their personal strategies. If you didn’t know anything about
follow-through days, distribution, sentiment indicators, breadth, volume,
momentum, etc., but you knew how well your trades were working, that is really
all you would need to know about the market.
Best of luck with your trading,
Rob
P.S. For those who may be looking to expand their
knowledge beyond just market timing, my
Hanna ETF Money Flow System utilizes the VIX in generating trading
signals for spread trades.
Rob Hanna is the principal of a money
management firm located in Massachusetts. He has spent the last several years
developing and refining methods for trading in stocks across multiple time
frames. He selects stocks using both fundamental and technical criteria, and
then trades them using technical analysis techniques.