From Coach G. (Theta Maker)
For those that made it to the coaches show September 9th, you might remember me jumping in at the 53rd minute to warn everyone that the bulls are done.  Here comes a pullback.  Even as the market was touching new highs.  This is why we look at internal indicators and not just the markets like the S&P 500, Dow, etc.  Internals are indicators that measure the strength and weakness of a market or trend.  The Indicator I want to highlight here is one a put together in the Think Or Swim charts.  I call it my “Arca Hilo”.  It has helped me make so many great calls and decisions that it is one of my favorite internals.  Now I have about 8-10 of these I look at consistently throughout my trading day, but this one has been quite important.

The symbol you can put in think or swim charts $ARHI3M-ARLO3M 

This looks at all of the stocks tracked on the Archipelago Exchange, and counts the number of stocks making a
New 3 month high
then subtracts those stocks making
A new 3 month low
The net difference is positive or negative.
I read it by looking at the bars if its 2 green bars above 0 then the undercurrent is bullish even if its a down day for the major markets.
And if its 2 red below the 0 line then the under current / internals are weak, bearish even if its an up day on the markets.

As you see the long 8-9 month span of green bars from February to Sept. , this tells me more stocks are hitting new highs than new lows in the market.  So when the market would pull back, it is most likely safe to buy on dips.   And also the reverse, if market rallies and its a red candle below zero, its probably a false rally.

If you think about it, The S&P could be making a new high, but remember its only averaging 500 stocks.  Its a small sample group of a big market.  And the Russell 2000 Is looking at a whole different sample group of stocks.  Thats why you have the russell down trending while the S&P was up trending.  Totally different baskets of stocks.

So by looking at the ARCA, one of the biggest exchanges that trades the most stocks and options, I am looking at all the actively traded stocks in the indexes and not in any particular index.  I am looking at everything traded.  That really lets you know whether the universe of stocks are bearish or bullish and the true current of who is in control between Bulls & Bears.

Now you combine this indicator together with a few others and it really helps you make solid decisions.  Like the past 2 days we had a down day followed by a very big up day on a long term support on October 8th.  Even though it was a big up day on the major markets, DOW, S&P, RUSSEL, NASDAQ etc,,,the ARCA HILO indicator showed an even more bullish red candle below 0.

Think about that for a second.  Major markets are moving up big and having a great day, but behind the curtain more stocks in the universe are really making new lows on their 3 month charts.  The internals show bears in control so rally might be short lived and probably just short covering or dead cat bounce some call it.

So what happened next day, Oct. 9th?  Market drops again.

Again, combine this indicator together with a few others and it really helps you make solid decisions.

Pretty cool indicator, hope you all enjoy it.  Also, want to hear of your favorites.

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