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This composite index calculates the number of stocks that are trading above the Keltner Channel upper band and the number of stocks that are trading below the Keltner Channel lower band and then divide the first value (Up stocks) by the second one (Down stocks).
Created by Chester W. Keltner, the Keltner Channel creates two lines that are computed by adding/subtracting the security volatility (calculated by the ATR or Average True Range) to the exponential moving average. These lines are called the upper and the lower bands.
The Keltner Channel generates a buy signal when the stock close price is above its upper band and a sell signal when it is below the lower band; consequently, this ratio should indicate that the market is bullish when its value is above one and bearish when it is below one. Extreme values could be interpreted the opposite way; that is, an extreme high value is bearish and an extreme low value is bullish.
The Keltner Channel market composite uses the Keltner Channel technical analysis indicator with the following parameters:
Price Series: Close plus high plus low divided by three
Period: 20
Factor: 2
To create this Keltner Channel composite, I have added two composite (Stocks above upper band and stocks below upper band) and then used a script to divide the values of the first composite by the values of the second one (for the same bar index).
This results in a time-series that cannot be lower than zero. In fact, a value of zero means that there are no stocks/securities, for the specific date, that are trading above their Keltner channel upper band.
