The Market Monitor is a market breadth indicator that tells you about the buying or selling pressure in the market.
Once you understand it you can find high probability turning points in market and anticipate possible risky areas. That can allow you to lower your drawdown.
Market breadth studies look at participation level of stocks in market moves. There are many breadth indicators. MM is one of the ways to use breadth.
MM uses different time frames ranging from daily to quarterly to calculate market breadth. It can anticipate likely turning points and tells you when the market is in a confirmed rally stage. And when it is at bullish or bearish extremes.
It was developed around 2001 to help me manage drawdowns and avoid certain risky periods on long side.
What does Market Monitor track?
Number of stocks up and down 4% or more on high volume today.
Number of stocks up and down 25% or more in a quarter.
Number of stocks up and down 50% or more in a month.
Number of stocks up and down 25% or more in a month.
Number of stocks up or down more than 13% in 34 days
What do those Market Monitor numbers tell you?
Like any other breadth indicators they tell you how many stocks are participating in market moves.
If say market is up 1% and you have 500 stocks up 4% plus , it tells you there was broad based buying .
If say market is up 1% and you have 80 stocks up 4% plus , it tells you there was narrow based buying .
If you see numbers like say 120/130 on 4% it tells you both buyers and sellers were active on that day.
Everyday you have to look at that days numbers to see what they are telling you and then look at them compared to historical benchmark.
If you look at history you will see 300 plus days are rare occurrences. So when you get one it tells you there is above average buying or selling.