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With three simple moving averages and a list of stocks that compose a market, group, index or sector, the Moving Average Trends is a market breadth indicator that results from a simple calculation on a group of stocks.
First of all, for each stock, the market indicator calculates a short, intermediate and long term moving average and then returns a value of two if the short term moving average (ST) is above the intermediate and long term moving averages (MT, LT) and the MD moving average is above the LT moving average. A value of one if the previous scenario is false and if the short term moving average is above the intermediate term moving average, otherwise a value of 0 is returned.
After this sort of scoring computation, the value attributed to each stock is added and this sum is divided by the number of stocks (for each trading bar). Example: If your stock's universe is composed of 250 stocks and on January 10, 2008, 210 stocks (those who have quotes on that bar) were used to calculate this market breadth indicator then the sum of stock's score is divided by 210.
The composite index name is "^MAT" and it can be interpreted as follows: A high value indicates that the Moving Average Trends indicator is bullish and that more stocks are trending up that stocks trending down. A low value indicates that the Moving Average Trends market indicator is bearish.
Here are some market indicators I have previously shared: Price to Book Ratio Historical Data - Market to Book results from the average of the average directional index (ADX) value of all stocks that are part of the composite. Percent Oversold to Overbought Stocks - Market Breadh Indicator calculates the ratio of oversold to overbought stock. In other words, it calculates the number of stocks that are oversold (Relative Strength Index lower than 30) and divides it by the number of stocks that are overbought (RSI higher than 70).
Trading financial instruments, including foreign exchange on margin, carries a high level of risk and is not suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to invest in financial instruments or foreign exchange you should carefully consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with trading and seek advice from an independent financial advisor if you have any doubts.
