Looking under the market's hood

It seems that my previous post prompted a link from from Stockbee, as I have seen a sharp spike in my visits. I do not have a paid Stockbee membership so I can't follow the link back from where it originated. I can only hope that it wasn't pointing people to see a post of "what not to do". I have great respect for what Pradeep does and I hope that I wasn't stepping on his toes. It is one thing to present an indicator, it is quite another thing to use that indicator to make money in the market. Pradeep knows how to use his tools and that is why people pay him money for his advice. With that said, I want to respond to a comment asking about the previous post.

The indicator I presented is really quite simple. All one needs to do is calculate the percent change of the closing price from a high or low of a given period. One then counts how many stocks in a given index are above or below a given threshold. The final indicator is constructed by subtracting the percentage of stocks below the threshold from the percentage of stocks above the threshold. What's cool about the indicator is that stocks in a consolidation do not contribute.

Below, I use Terra Nitrogen (TNH) as an example. The first chart shows the 30 day Donchian channels (30 day highs and lows) and also shows the percent above the low and percent off of the high. In the previous post, I used a threshold of 15% in order to determine if the stock should be counted or not. If TNH was included in our hypothetical index, it would contribute to both the up count and the down. Since the final result of the indicator takes the difference between the up and down counts, TNH would cancel out and not contribute to either direction of the indicator.
The next two charts use longer time frames and greater thresholds. The 50 day high/low uses a 25% threshold. For the 80 day high/low I used the 40% threshold. Both time frames had TNH contributing to the up count, but not to the down count. Therefore, TNH would help contribute to the health of any index it was included in.

All I did in the previous post was to repeat these calculations for every stock in the Russell 1000 and the Nasdaq 100. Blocks 2.0 and Blocks 3.0 uses a very simple interface that makes such calculations very easy.