A change has been implemented with the calculation of the Stock Trends aggregate distribution measures. The Bulls vs. Bears graph now only aggregates trend indicators for common stocks and income trusts.
An important chart published weekly by Stock Trends is the aggregate distribution of the trend indicators for each market. The Stock Trends Bulls vs. Bears graph – is an area graph representation of the relative number of issues in each of the Stock Trends trend categories. These gages of investor sentiment help us see the breadth of a bullish or bearish market. In contrast to a price index, which calculates an absolute value to represent either all or a segment of a particular market – often derived by weighting of its components – the Stock Trends distribution tells of the market’s broad trend foundation, giving as much relevance to the trend of small cap issues as to those of blue chip stocks.
Most often the trend distribution of the Stock Trends indicators mirrors the movement of the price indexes for each market. Sometimes, though, there is a divergence. Typically, this divergence can highlight the specific weighting biases of a capitalization-derived index (the extremely high index weighting of Toronto-listed Nortel at its height in the late 1990s, for example, was particularly problematic for the S&P/TSX Composite index readings and the composite did not reflect the bearish markings of the Stock Trends Bulls and Bears graph at that time.) However, subtle moves in the actual distribution of the individual markets provide some especially helpful guidance for investors.
In a bearish market – like the one we have now – it is important to keep an eye on the changing level of the Stock Trends Weak Bearish () indicator. An expansion of this category, shown in the area graph as a growing pink coloured area, generally indicates a strong likelihood of an impending change in the long-term trend of the market. This is particularly fruitful time for our trend-following trading systems and correlates with anticipating the most active buying time.
In contrast, a growing number of Weak Bullish () stocks alerts investors that the foundation of existing long-term bullish trend is frail, and that holding stocks is now risk-laden. Profit-taking should be on an investors mind.
The current Stock Trends Bulls and Bears distribution remains dismal. The Bulls vs Bears Ratio is 0.4 on the NYSE and is showing not particularly hopeful signs for an immediate change.
Long-time followers of the Stock Trends trend distribution will note a change in the number of trending stocks reported on for all exchanges. Commencing with the launch of the new website we have changed the aggregate measures to now NOT include exchange-traded funds, preferred shares and other derivative instruments traded on the exchanges. Largely, the trending issues measured are now common stocks and investment trusts. The data will show a shift in this data query in mid-2011. In the last week of 2011 on the NYSE, for example, total trending issues reported was 4,236. Under the new enumeration, trending stocks total 2,864. This difference is significant on the NYSE because of the large number of exchange traded funds.
The rationale for eliminating exchange traded funds from the aggregate measures of trend is two-fold: (1) most of the funds represent a form a double-counting of already recorded trends in individual common stocks, and (2) the growing number of bear (or short) funds throws a wrench in the interpretations of aggregate trend. Is a bull trend in a bear fund a positive broad market indicator? One would think not. For better clarity we have decided to eliminate the aggregation of exchange traded funds and exchange traded preferred stocks and derivatives when calculating the Bulls vs Bears distribution measures.
The percentage breakdowns of trend are now slightly different. The NYSE is the most affected, but its distribution changes show the marginal difference: Strong Bulls () – old way 23.5%, new way 25%; Weak Bulls () – old way 2%, new way 2.1%; Strong Bears () - old way 56.2%, new way 50.8%; Weak Bears () - old way 15.3, new way 18.9%. The percentage differences on the Nasdaq, Amex, and TSX are comparable or lower. In any event, the change in the way this aggregate measure is derived will better reflect bullish or bearish sentiment.
Bulls vs Bears Summary (old way)
Bulls vs Bears Summary (new way)